By: Eiland H.B. No. 1293
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to certain disclosure standards for certain annuity
  contracts
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  The Insurance Code is amended by adding a new
  Chapter 1116 to read as follow:
  CHAPTER 1116.  DISCLOSURE REQUIREMENTS FOR CERTAIN ANNUITY
  TRANSACTIONS
  SUBCHAPTER A. GENERAL PROVISIONS
         Sec. 1116.001.  Purpose.  The purpose of this chapter is to
  provide standards for the disclosure of certain minimum information
  about annuity contracts to protect consumers and foster consumer
  education.  This chapter specifies the minimum information which
  must be disclosed and the method for disclosing it in connection
  with the sale of annuity contracts.  The goal of this chapter is to
  ensure that purchasers of annuity contracts understand certain
  basic features of certain annuity contracts.
         Sec. 1116.002.  Definitions.  In this chapter:
         (1)  "Buyer's Guide" means the Buyer's Guide for Fixed
  Deferred Annuities or the Buyer's Guide for Equity Indexed
  Annuities as adopted by the National Association of Insurance
  Commissioners and adopted by the Commissioner by rule as provided
  in this Chapter.
         (2)  "Charitable gift annuity" means a transfer of cash or
  other property by a donor to a charitable organization in return for
  an annuity payable over one or two lives, under which the actuarial
  value of the annuity is less than the value of the cash or other
  property transferred and the difference in value constitutes a
  charitable deduction for federal tax purposes, but does not include
  a charitable remainder trust or a charitable lead trust or other
  similar arrangement where the charitable organization does not
  issue an annuity and incur a financial obligation to guarantee
  annuity payments.
         (3)  "Contract owner" means the owner named in the annuity
  contract or certificate holder in the case of a group annuity
  contract.
         (4)  "Determinable elements" means elements that are derived
  from processes or methods that are guaranteed at issue and not
  subject to company discretion, but where the values or amounts
  cannot be determined until some point after issue.  These elements
  include the premiums, credited interest rates (including any
  bonus), benefits, values, non-interest based credits, charges or
  elements of formulas used to determine any of these.  These elements
  may be described as guaranteed but not determined at issue.  An
  element is considered determinable if it was calculated from
  underlying determinable elements only, or from both determinable
  and guaranteed elements.
         (5)  "Funding agreement" means an agreement for an insurer to
  accept and accumulate funds and to make one or more payments at
  future dates in amounts that are not based on mortality or morbidity
  contingencies.
         (6)  "Generic name"  means a short title descriptive of the
  annuity contract being applied for or illustrated such as "single
  premium deferred annuity."
         (7)  "Guaranteed elements" means the premiums, credited
  interest rates (including any bonus), benefits, values,
  non-interest based credits, charges or elements of formulas used to
  determine any of these, that are guaranteed and determined at
  issue.  An element is considered guaranteed if all of the underlying
  elements that go into its calculation are guaranteed.
         (8)  "Non-guaranteed elements" means the premiums, credited
  interest rates (including any bonus), benefits, values,
  non-interest based credits, charges or elements of formulas used to
  determine any of these, that are subject to company discretion and
  are not guaranteed at issue.  An element is considered
  non-guaranteed if any of the underlying non-guaranteed elements are
  used in its calculation.
         (9)  "Structured settlement annuity" means a "qualified
  funding asset" as defined in Section 130(d) of the Internal Revenue
  Code or an annuity that would be a qualified funding asset under
  Section 130(d) but for the fact that it is not owned by an assignee
  under a qualified assignment.
         Section 1116.003.  Applicability and Exemptions.  (a)  This
  chapter applies to all group and individual annuity contracts and
  certificates except:
               (1)  Registered or non-registered variable annuities
  or other registered products;
               (2)  Immediate and deferred annuities that contain no
  non-guaranteed elements;
               (3)  Except as provided in Subsection (b) of this
  section, annuities used to fund:
                     (i)  An employee pension plan which is covered by
  the Employee Retirement Income Security Act (ERISA);
                     (ii)  A plan described by Sections 401(a), 401(k)
  or 403(b) of the Internal Revenue Code, where the plan, for purposes
  of ERISA, is established or maintained by an employer;
                     (iii)  A governmental or church plan defined in
  Section 414 or a deferred compensation plan of a state or local
  government or a tax exempt organization under Section 457 of the
  Internal Revenue Code; or
                     (iv)  A nonqualified deferred compensation
  arrangement established or maintained by an employer or plan
  sponsor.
               (4)  Structured settlement annuities;
               (5)  Charitable gift annuities;
               (6)  Funding agreements; and
               (7)  An annuity contract used to fund a contract for
  prepaid funeral benefits, as defined by Chapter 154, Finance Code.
         (b)  Notwithstanding Subsection (a)(3) of this section, this
  chapter shall apply to annuities used to fund a plan or arrangement
  that is funded solely by contributions an employee elects to make
  whether on a pre-tax or after-tax basis, and where the insurance
  company has been notified that plan participants may choose from
  among two (2) or more fixed annuity providers and there is a direct
  solicitation of an individual employee by a producer for the
  purchase of an annuity contract.  As used in this subsection, direct
  solicitation shall not include any meeting held by a producer
  solely for the purpose of educating or enrolling employees in the
  plan or arrangement.
  SUBCHAPTER B.  DISCLOSURES AND DISCLOSURE STANDARDS
         Sec. 1116.051.  Disclosure Document and Buyer's Guide.  (a)  
  Where the application for an annuity contract is taken in a
  face-to-face meeting, the applicant shall, at or before the time of
  application, be given both a disclosure document and the applicable
  Buyer's Guide for either a Fixed Deferred annuity or Equity Indexed
  annuity based on the application for annuity contract.
         (b)  Where the application for an annuity contract is taken
  by means other than in a face-to-face meeting, the applicant shall
  be sent both the disclosure document and the applicable Buyer's
  Guide no later than five (5) business days after the completed
  application is received by the insurer.
         (c)  With respect to an application received as a result of a
  direct solicitation through the mail:
               (1)  Providing a Buyer's Guide in a mailing inviting
  prospective applicants to apply for an annuity contract shall be
  deemed to satisfy the requirement that the applicable Buyer's Guide
  be provided no later than five (5) business days after receipt of
  the application.
               (2)  Providing a disclosure document in a mailing
  inviting a prospective applicant to apply for an annuity contract
  shall be deemed to satisfy the requirement that the disclosure
  document be provided no later than five (5) business days after
  receipt of the application.
         (d)  With respect to an application received via the
  Internet:
               (1)  Taking reasonable steps to make the applicable
  Buyer's Guide available for viewing and printing on the insurer's
  website shall be deemed to satisfy the requirement that the Buyer's
  Guide be provided no later than five (5) business days of receipt of
  the application.
               (2)  Taking reasonable steps to make the disclosure
  document available for viewing and printing on the insurer's
  website shall be deemed to satisfy the requirement that the
  disclosure document be provided no later than five (5) business
  days after receipt of the application.
         (e)  A solicitation for an annuity contract provided in other
  than a face-to-face meeting shall include a statement that the
  proposed applicant may contact the Texas Insurance Department for a
  free annuity Buyer's Guide applicable to the type of annuity
  application.  In lieu of the foregoing statement, an insurer may
  include a statement that the prospective applicant may contact the
  insurer for a free annuity Buyer's Guide.
         (f)  Where the Buyer's Guide and disclosure document are not
  provided at or before the time of application, a free look period of
  no less than fifteen (15) days shall be provided for the applicant
  to return the annuity contract without penalty.  This free look
  shall run concurrently with any other free look provided under this
  Code or the laws of this state.
         Sec. 1116.052.  Disclosure Document Standards.  At a
  minimum, the following information shall be included in the
  disclosure document required to be provided under this chapter:
         (a)  The generic name of the contract, the company product
  name, if different, and form number, and the fact that it is an
  annuity;
         (b)  The insurer's name and address;
         (c)  A description of the contract and its benefits,
  emphasizing its long-term nature, including examples where
  appropriate:
               (1)  The guaranteed, non-guaranteed and determinable
  elements of the contract, and their limitation, if any, and an
  explanation of how they operate;
               (2)  An explanation of the initial crediting rate,
  specifying any bonus or introductory portion, the duration of the
  rate and the fact that rates may change from time to time and are not
  guaranteed;
               (3)  Periodic income options both on a guaranteed and
  non-guaranteed basis;
               (4)  Any value reductions caused by withdrawals from or
  surrender of the contract;
               (5)  How values in the contract can be accessed;
               (6)  The death benefit, if available and how it will be
  calculated;
               (7)  A summary of the federal tax status of the contract
  and any penalties applicable on withdrawal of values from the
  contract; and
               (8)  Impact of any rider, such as a long-term care
  rider.
         (c)  Specific dollar amount or percentage charges and fees
  shall be listed with an explanation of how they apply.
         (d)  Information about the current guaranteed rate for new
  contracts that contains a clear notice that the rate is subject to
  change.
         (e)  Insurers shall define terms used in the disclosure
  statement in language that facilitates the understanding by a
  typical person within the segment of the public to which the
  disclosure statement is directed.
         Sec. 1116.053.  Report to Contract Owners.  For annuities in
  the payout period with changes in non-guaranteed elements and for
  the accumulation period of a deferred annuity, the insurer shall
  provide each contract owner with a report, at least annually, on the
  status of the contract that contains at least the following
  information:
         (1)  The beginning and end date of the current report period;
         (2)  The accumulation and cash surrender value, if any, at
  the end of the previous report period and at the end of the current
  report period;
         (3)  The total amounts, if any, that have been credited,
  charged to the contract value or paid during the current report
  period; and
         (4)  The amount of outstanding loans, if any, as of the end of
  the current report period.
         Sec. 1116.054.  Rules.  The Commissioner shall adopt by rule
  Buyer's Guides for fixed, deferred and equity indexed annuities to
  accomplish the purpose of this Chapter.  The Buyer's Guide adopted
  by the Commissioner shall be the most recent Buyer's Guide for Fixed
  Deferred Annuities and Buyer's Guide for Equity Indexed Annuities
  adopted by the National Association of Insurance Commissioners.
  SUBCHAPTER C.  ENFORCEMENT
         Sec. 1116.101.  Sanctions.  (a)  The commissioner may impose
  sanctions as provided by Chapter 82 for a violation of this Chapter.
         (b)  The commissioner may reduce or eliminate a sanction for
  a violation of this chapter otherwise applicable if corrective
  action for the consumer was taken promptly after a violation was
  discovered.
         Sec. 1116.102.  Severability.  If any provision of this
  chapter or its application to any person or circumstance is for any
  reason held to be invalid by any court of law, the remainder of the
  regulation and its application to other persons or circumstances
  shall not be affected.
         SECTION 2.  Effective Date.  This legislation shall become
  effective on January 1, 2010 and shall apply to policies,
  applications and contracts issued or delivered on or after the
  effective date.