Chapter 04-609
2004 -- S 2685
Enacted 08/07/04
A N A C T
RELATING
TO INSURANCE -- INDIVIDUAL DEFERRED ANNUITIES
Introduced
By: Senator William A. Walaska
Date
Introduced: February 11, 2004
It
is enacted by the General Assembly as follows:
SECTION 1. Sections
27-4.4-3 and 27-4.4-4 of the General Laws in Chapter 27-4.4
entitled
"The Standard Nonforfeiture Law for Individual Deferred Annuities"
are hereby amended
to
read as follows:
27-4.4-3.
Nonforfeiture requirements. -- (a) In the case of contracts issued on
or after
January
1, 1994
the effective date of this section, no contract of annuity, except as
stated in
section
27-4.4-2, shall be delivered or issued for delivery in this state unless it
contains in
substance
the following provisions, or corresponding provisions which in the opinion of
the
commissioner
of insurance are at least as favorable to the contract holder, upon cessation
of
payment
of considerations under the contract:
(1) That upon cessation of payment of considerations under contract, or upon
written
request
of the contract owner, the company will shall grant a paid-up
annuity benefit on a plan
stipulated
in the contract of a such value as is specified in sections 27-4.4-5
-- 27-4.4-8 and 27-
4.4-10;
(2) If a contract provides for a lump sum settlement at maturity, or at any
other time, that
upon
surrender of the contract at or prior to the commencement of any annuity
payments, the
company
will shall pay in lieu of any paid up annuity benefit a cash
surrender benefit of an such
amount
as is specified in sections 27-4.4-5, 27-4.4-6, 27-4.4-8 and 27-4.4-10. The
company shall
may reserve the right to
defer the payment of the cash surrender benefit for a period of not
to
exceed six (6) months after
demand for it therefore with surrender of the contract after
making a
written
request and receiving written approval of the commissioner. The request shall
address the
necessity
and equitability to all policyholders of the deferral;
(3) A statement of the mortality table, if any, and interest rates used in
calculating any
minimum
paid up annuity, cash surrender, or death benefits that are guaranteed under
the
contract,
together with sufficient information to determine the amounts of the benefits;
and
(4) A statement that any paid-up annuity, cash surrender, or death benefits
that may be
available
under the contract are not less than the minimum benefits required by any
statute of the
state
in which the contract is delivered and an explanation of the manner in which
the benefits are
altered
by the existence of any additional amounts credited by the company to the
contract, any
indebtedness
to the company on the contract, or any prior withdrawals from or partial
surrenders
of
the contract.
(b) Notwithstanding the requirements of this section, any deferred annuity
contract may
provide
that if no considerations have been received under a contract for a period of
two (2) full
years
and the portion of the paid-up annuity benefit at maturity on the plan
stipulated in the
contract
arising from considerations paid prior to the period would be less than twenty
dollars
($20.00)
monthly, the company may at its option terminate the contract by payment in
cash of the
then
present value of the portion of the paid up annuity benefit, calculated on the
basis on the
mortality
table, if any, and interest rate specified in the contract for determining the
paid-up
annuity
benefit, and by the payment shall be relieved of any further obligation under
the contract.
27-4.4-4.
Minimum values. -- (a) The minimum values as specified in sections
27-4.4-5
-
27-4.4-8 and 27-4.4-10 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) In contracts providing for flexible considerations, the 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 that time at a rates of interest of three percent (3%)
per annum of percentages
of as provided in
subsection (d) of this section, the net considerations as defined in this
section
paid
prior to that time, decreased by the sum of:
(1) Any prior withdrawals from or partial surrenders of the contract
accumulated at a
rates
of interest of three percent (3%) per annum as provided in subsection
(d) of this section; and
(2) The amount of any indebtedness to the company on the contract, including
interest
due
and accrued;, and increased by any existing additional amounts
credited by the company to
the
contract.
(3)
An annual contract charge of fifty dollars ($50.00), accumulated at rates of
interest as
provided
in subsection (d) of this section; and
(4)
Any premium tax paid by the company for the contract, accumulated at rates of
interest
as provided in subsection (d) of this section.
(c) The net considerations for a given contract year used to define the minimum
nonforfeiture
amount shall be an amount not less than zero and shall be equal to eighty-seven
and
one-half
percent (87.5%) of
the corresponding gross considerations credited to the contract during
that
contract year. less an annual contract charge of thirty dollars
($30.00) and less a collection
charge
of one dollar and twenty-five cents ($1.25) per consideration credited to the
contract
during
that contract year. The percentages of net considerations shall be sixty-five
percent (65%)
of
the net consideration for the first contract year and eighty-seven and one-half
percent (87.5%)
of
the net considerations for the second and later contract years. Notwithstanding
these net
considerations
provisions, the percentage shall be sixty-five percent (65%) of the portion of
the
total
net considerations for any renewal contract year that exceeds by not more than
two (2) times
the
sum of those portions of the net considerations in all prior contract years for
which the
percentage
was sixty-five percent (65%).
(d) In contracts providing for fixed scheduled considerations, minimum
nonforfeiture
amounts
shall be calculated on the assumption that considerations are paid annually in
advance
and
shall be defined as for contracts with flexible considerations which are paid
annually with
two
(2) exceptions:
(1) The portion of the net consideration for the first contract year to be
accumulated shall
be
the sum of sixty-five percent (65%) of the net consideration for the first
contract year plus
twenty-two
and one-half percent (22.5%) of the excess of the net consideration for the
first
contract
year over the lesser of the net considerations for the second and third
contract years; and
(2) The annual contract charge shall be the lesser of (i) thirty dollars
($30.00) or (ii) ten
percent
(10%) of the gross annual consideration.
(e) In contracts providing for a single consideration, minimum nonforfeiture
amounts
shall
be defined as for contracts with flexible considerations except that the
percentage of net
consideration
used to determine the minimum nonforfeiture amount shall be equal to ninety
percent
(90%) and the net consideration shall be the gross consideration less a
contract charge of
seventy-five
dollars ($75.00).
(d)
The interest rate used in determining minimum nonforfeiture amounts shall be an
annual
rate of interest determined as the lesser of three percent (3%) per annum and
the
following,
which shall be specified in the contract if the interest rate will be reset:
(1)
The five (5) year Constant Maturity Treasury Rate reported by the Federal
Reserve as
of
a date, or average over a period, rounded to the nearest one twentieth of one
percent (1/20%),
specified
in the contract no longer than fifteen (15) months prior to the contract issue
date or
redetermination
date under subsection 4 of this section;
(2)
Reduced by one hundred twenty-five (125) basis points;
(3)
Where the resulting interest rate is not less than one percent (1%); 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.
The basis is the date or average over a specified period that produces the
value of the
five
(5) year Constant Maturity Treasury Rate to be used at each redetermination
date.
(e)
During the period or term that a contract provides substantive participation in
an
equity
indexed benefit, it may increase the reduction described in subsection (d)(2)
of this section
above
by up to an additional one hundred (100) basis points to reflect the value of
the equity
index
benefit. The present value at the contract issue date, and at each
redetermination date
thereafter,
of the additional reduction shall not exceed the market value of the benefit.
The
commissioner
of insurance may require a demonstration that the present value of the
reduction
does
not exceed the market value of the benefit. Lacking such a demonstration that
is acceptable
to
the commissioner, the commissioner may disallow or limit the additional
reduction.
(f)
The commissioner of insurance may adopt rules to implement the provisions of
subsection
(e) of this section and to provide for further adjustments to the calculation
of minimum
nonforfeiture
amounts for contracts that provide substantive participation in an equity index
benefit
and for other contracts that the commissioner determines adjustments are
justified.
SECTION
2. This act shall take effect upon passage and upon the effective date and
thereafter,
a company subject to the provisions of this act may elect to apply the
provisions hereof
to
annuity contracts on a contract form by contract form basis.
In
all other respects, this act shall apply with respect to annuity contracts
issued by a
company
after the second anniversary of this act.
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LC02507
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