HOUSE BILL NO. 496

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Bill Status



H0496...........................................................by BUSINESS
ANNUITIES - Amends existing law to revise minimum nonforfeiture amounts
applicable to annuity contracts issued by insurers; to authorize the
director to adopt rules; and to provide effective dates for nonforfeiture
amount provisions.
                                                                        
01/20    House intro - 1st rdg - to printing
01/21    Rpt prt - to Bus
02/10    Rpt out - rec d/p - to 2nd rdg
02/11    2nd rdg - to 3rd rdg
02/17    3rd rdg - PASSED - 63-0-7
      AYES -- Andersen, Barraclough, Barrett, Bauer, Bayer, Bedke, Bell,
      Block, Boe, Bolz, Bradford, Campbell, Cannon, Clark, Collins, Crow,
      Cuddy, Deal, Denney, Douglas, Eberle, Edmunson, Ellsworth, Field(18),
      Field(23), Gagner, Garrett, Harwood, Henbest, Jaquet,
      Kellogg(Nonini), Kulczyk, Lake, Langford, Langhorst, Martinez, Meyer,
      Miller, Mitchell, Moyle, Naccarato, Nielsen, Pasley-Stuart, Raybould,
      Ridinger, Ring, Ringo, Roberts, Robison, Rydalch, Sali, Sayler,
      Schaefer, Shepherd, Shirley, Skippen, Smith(30), Smith(24), Smylie,
      Snodgrass, Trail, Wills, Wood
      NAYS -- None
      Absent and excused -- Black, Eskridge, Jones, McGeachin, McKague,
      Stevenson, Mr. Speaker
    Floor Sponsor - Gagner
    Title apvd - to Senate
02/18    Senate intro - 1st rdg - to Com/HuRes
02/25    Rpt out - rec d/p - to 2nd rdg
02/26    2nd rdg - to 3rd rdg
03/10    3rd rdg - PASSED - 35-0-0
      AYES -- Andreason(Andreason), Bailey, Brandt, Bunderson, Burkett,
      Burtenshaw, Calabretta, Cameron, Compton, Darrington, Davis, Gannon,
      Geddes, Goedde, Hill, Ingram, Kennedy, Keough, Little, Lodge,
      Malepeai, Marley, McKenzie, McWilliams, Noble, Noh, Pearce,
      Richardson, Schroeder, Sorensen, Stegner, Stennett, Sweet, Werk,
      Williams
      NAYS -- None
      Absent and excused -- None
    Floor Sponsor - Cameron
    Title apvd - to House
03/11    To enrol
03/12    Rpt enrol - Sp signed
03/15    Pres signed
03/16    To Governor
03/19    Governor signed
         Session Law Chapter 92
         Effective: 07/01/04 with alternative
         provisions for compliance

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-seventh Legislature                 Second Regular Session - 2004
                                                                        
                                                                        
                              IN THE HOUSE OF REPRESENTATIVES
                                                                        
                                     HOUSE BILL NO. 496
                                                                        
                                   BY BUSINESS COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO INDIVIDUAL DEFERRED ANNUITIES; AMENDING  SECTION  41-1927A,  IDAHO
  3        CODE,  TO  REVISE MINIMUM NONFORFEITURE AMOUNTS APPLICABLE TO ANNUITY CON-
  4        TRACTS ISSUED BY INSURERS, TO AUTHORIZE THE DIRECTOR TO ADOPT RULES AND TO
  5        MAKE A TECHNICAL CORRECTION; AND PROVIDING EFFECTIVE DATES FOR  NONFORFEI-
  6        TURE AMOUNT PROVISIONS.
                                                                        
  7    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
  8        SECTION  1.  That Section 41-1927A, Idaho Code, be, and the same is hereby
  9    amended to read as follows:
                                                                        
 10        41-1927A.  STANDARD NONFORFEITURE LAW FOR INDIVIDUAL  DEFERRED  ANNUITIES.
 11    (1) This section shall be known as the standard nonforfeiture law for individ-
 12    ual deferred annuities.
 13        (2)  This  section  shall not apply to any reinsurance, group annuity pur-
 14    chased under a retirement plan or plan of deferred compensation established or
 15    maintained by an employer (including a partnership or sole proprietorship)  or
 16    by  an employee organization, or by both, other than a plan providing individ-
 17    ual retirement accounts or individual retirement annuities under  section  408
 18    of  the iInternal rRevenue cCode, as now or hereafter amended, premium deposit
 19    fund, variable annuity, investment annuity, immediate  annuity,  any  deferred
 20    annuity  contract after annuity payments have commenced, or reversionary annu-
 21    ity, nor to any contract which shall be delivered outside this  state  through
 22    an agent or other representative of the insurer issuing the contract.
 23        (3)  In  the  case  of  contracts issued on or after the operative date of
 24    this section as defined in subsection (12) of this  section,  no  contract  of
 25    annuity, except as stated in subsection (2) of this section shall be delivered
 26    or  issued for delivery in this state unless it contains in substance the fol-
 27    lowing provisions, or corresponding provisions which in  the  opinion  of  the
 28    director  are  at  least as favorable to the contractholder, upon cessation of
 29    payment of considerations under the contract.
 30        (a)  That upon cessation of payment of considerations  under  a  contract,
 31        the  insurer  will grant a paid-up annuity benefit on a plan stipulated in
 32        the contract of such value as is specified in subsections (5),  (6),  (7),
 33        (8) and (10) of this section.
 34        (b)  If  a  contract provides for a lump sum settlement at maturity, or at
 35        any other time, that upon surrender of the contract at  or  prior  to  the
 36        commencement  of any annuity payments, the insurer will pay in lieu of any
 37        paid-up annuity benefit a cash surrender benefit  of  such  amount  as  is
 38        specified  in  subsections  (5),  (6),  (8)  and (10) of this section. The
 39        insurer shall reserve the right to defer the payment of such cash  surren-
 40        der benefit for a period of six (6) months after demand therefor with sur-
 41        render  of the contract. If the insurer defers payment of a cash surrender
 42        benefit under this section, the insurer shall pay  interest  at  the  rate
 43        specified in section 28-22-104(2), Idaho Code, as established and in exis-
                                                                        
                                           2
                                                                        
  1        tence at the time of the surrender demand.
  2        (c)  A  statement  of the mortality table, if any, and interest rates used
  3        in calculating any minimum paid-up annuity, cash surrender or death  bene-
  4        fits  that  are  guaranteed  under  the contract, together with sufficient
  5        information to determine the amounts of such benefits.
  6        (d)  A statement that any paid-up annuity, cash surrender or  death  bene-
  7        fits  that may be available under the contract are not less than the mini-
  8        mum benefits required  by any statute of the state in which  the  contract
  9        is  delivered  and an explanation of the manner in which such benefits are
 10        altered by the existence of any additional amounts credited by the insurer
 11        to the contract, any indebtedness to the insurer on the  contract  or  any
 12        prior withdrawals from or partial surrenders of the contract.
 13        Notwithstanding  the  requirements  of  this section, any deferred annuity
 14    contract may provide that if no considerations have been received under a con-
 15    tract for a period of two (2) full years and the portion of the paid-up  annu-
 16    ity  benefit  at  maturity on the plan stipulated in the contract arising from
 17    considerations paid prior to such period would be  less  than  twenty  dollars
 18    ($20.00)  monthly,  the  insurer  may at its option terminate such contract by
 19    payment in cash of the then present value of such portion of the paid-up annu-
 20    ity benefit, calculated on the basis of  the  mortality  table,  if  any,  and
 21    interest  rate  specified  in the contract for determining the paid-up annuity
 22    benefit, and by such payment shall be relieved of any further obligation under
 23    such contract.
 24        (4)  The minimum values as specified in subsections (5), (6), (7), (8) and
 25    (10) of this section of any paid-up annuity, cash surrender or death  benefits
 26    available  under an annuity contract shall be based upon minimum nonforfeiture
 27    amounts as defined in this section.
 28        (a)  With respect to contracts providing for flexible considerations,  the
 29        minimum  nonforfeiture  amount at any time at or prior to the commencement
 30        of any annuity payments shall be equal to an accumulation up to such  time
 31        at  a  rate  of interest of three percent (3%) per annum of percentages of
 32        the net considerations (as hereinafter defined) paid prior to  such  time,
 33        decreased  by the sum of (i) any prior withdrawals from or partial surren-
 34        ders of the contract accumulated at a rate of interest  of  three  percent
 35        (3%)  per  annum and (ii) the amount of any indebtedness to the insurer on
 36        the contract, including interest due and accrued,  and  increased  by  any
 37        existing additional amounts credited by the insurer to the contract.
 38        The  net considerations for a given contract year used to define the mini-
 39        mum nonforfeiture amount shall be an amount not less than zero  and  shall
 40        be  equal  to  the corresponding gross considerations credited to the con-
 41        tract during that contract year less an annual contract charge  of  thirty
 42        dollars  ($30.00)  and  less a collection charge of one dollar and twenty-
 43        five cents ($1.25) per consideration credited to the contract during  that
 44        contract  year.  The percentages of net considerations shall be sixty-five
 45        percent (65%) of the net consideration for the  first  contract  year  and
 46        eighty-seven  and one-half percent (87 1/2%) of the net considerations for
 47        the second and later contract years. Notwithstanding the provisions of the
 48        preceding sentence, the percentage shall be sixty-five  percent  (65%)  of
 49        the  portion  of the total net consideration for any renewal contract year
 50        which exceeds by not more than two (2) times the sum of those portions  of
 51        the  net considerations in all prior contract years for which the percent-
 52        age was sixty-five percent (65%).
 53        Notwithstanding the provisions of paragraph (a) of  this  subsection,  the
 54    minimum nonforfeiture amount for any contract issued on or after July 1, 2003,
 55    and  before  July 1, 2005 shall be based on a rate of interest of one and one-
                                                                        
                                           3
                                                                        
  1    half percent (1.5%) per annum.
  2        (b)  With respect to contracts providing  for  fixed  scheduled  consider-
  3        ations,  minimum  nonforfeiture amounts shall be calculated on the assump-
  4        tion that considerations are paid annually in advance and shall be defined
  5        as for contracts with flexible considerations which are paid annually with
  6        two (2) exceptions:
  7             1.  The portion of the net consideration for the first contract  year
  8             to be accumulated shall be the sum of sixty-five percent (65%) of the
  9             net  consideration  for  the  first contract year plus twenty-two and
 10             one-half percent (22 1/2%) of the excess of the net consideration for
 11             the first contract year over the lesser of the net considerations for
 12             the second and third contract years.
 13             2.  The annual contract charge shall be the lesser of (i) thirty dol-
 14             lars ($30.00) or (ii) ten percent (10%) of the gross annual consider-
 15             ations.
 16        (c)  With respect to contracts providing for a single consideration, mini-
 17        mum nonforfeiture amounts shall be defined as for contracts with  flexible
 18        considerations  except  that  the  percentage of net consideration used to
 19        determine the minimum nonforfeiture amount shall be equal to  ninety  per-
 20        cent (90%) and the net consideration shall be the gross consideration less
 21        a  contract charge of seventy-five dollars ($75.00) The minimum nonforfei-
 22        ture amount at any time at or prior to the  commencement  of  any  annuity
 23        payments  shall  be  equal  to an accumulation up to such time at rates of
 24        interest as indicated in subsection (4)(b) of this section of the net con-
 25        siderations (as hereinafter defined) paid prior to such time, decreased by
 26        the sum of subparagraphs (4)(a)(i) through (iv) below:
 27             (i)   Any prior withdrawals from or partial surrenders  of  the  con-
 28             tract  accumulated  at  rates  of interest as indicated in subsection
 29             (4)(b) of this section;
 30             (ii)  An annual contract charge of fifty  dollars  ($50.00),  accumu-
 31             lated  at rates of interest as indicated in subsection (4)(b) of this
 32             section;
 33             (iii) Any premium tax paid by the insurer for the  contract,  accumu-
 34             lated  at rates of interest as indicated in subsection (4)(b) of this
 35             section, provided that the premium tax credit is  only  permitted  if
 36             the tax is actually paid by the insurer, and provided further that if
 37             the  tax  is paid and subsequently credited back to the insurer, such
 38             as upon early termination of the contract, the tax credit may not  be
 39             taken; and
 40             (iv)  The  amount of any indebtedness to the insurer on the contract,
 41             including interest due and accrued.
 42        The net considerations for a given contract year used to define the  mini-
 43        mum nonforfeiture amount shall be an amount equal to eighty-seven and one-
 44        half  percent (87.5%) of the gross considerations credited to the contract
 45        during that contract year.
 46        (b)  The interest rate used in determining minimum  nonforfeiture  amounts
 47        shall be an annual rate of interest determined as the lesser of three per-
 48        cent  (3%)  per  annum  and the following, which shall be specified in the
 49        contract if the interest rate will be reset:
 50             (i)   The five (5) year constant maturity treasury rate  reported  by
 51             the  federal  reserve as of a date, or average over a period, rounded
 52             to the nearest one-twentieth of one percent (.2%), specified  in  the
 53             contract  no  longer  than  fifteen (15) months prior to the contract
 54             issue date or redetermination date  under  subsection  (4)(b)(iv)  of
 55             this section;
                                                                        
                                           4
                                                                        
  1             (ii)  Reduced by one hundred twenty-five (125) basis points;
  2             (iii) Where  the resulting interest rate is not less than one percent
  3             (1%); and
  4             (iv)  The interest rate shall apply for an initial period and may  be
  5             redetermined  for additional periods. The redetermination date, basis
  6             and period, if any, shall be stated in the contract. The basis is the
  7             date or average over a specified period that produces  the  value  of
  8             the  five (5) year constant maturity treasury rate to be used at each
  9             redetermination date.
 10        (c)  During the period or term that a contract provides  substantive  par-
 11        ticipation  in  an  equity  indexed benefit, it may increase the reduction
 12        described in subsection (4)(b)(ii) of this section by up to an  additional
 13        one  hundred  (100)  basis points to reflect the value of the equity index
 14        benefit. The present value at the contract issue date, and at  each  rede-
 15        termination  date thereafter, of the additional reduction shall not exceed
 16        the market value of the benefit. The director may require a  demonstration
 17        that  the  present  value  of the additional reduction does not exceed the
 18        market value of the benefit. Lacking such a demonstration that is  accept-
 19        able  to  the  director, the director may disallow or limit the additional
 20        reduction.
 21        (d)  The director may adopt rules to implement the provisions  of  subsec-
 22        tion  (4)(c) of this section and to provide for further adjustments to the
 23        calculation of minimum nonforfeiture amounts for  contracts  that  provide
 24        substantive  participation  in  an equity index benefit and for other con-
 25        tracts that the director determines adjustments are justified.
 26        (5)  Any paid-up annuity benefit available under a contract shall be  such
 27    that  its  present  value  on  the date annuity payments are to commence is at
 28    least equal to the minimum nonforfeiture amount on  that  date.  Such  present
 29    value  shall  be  computed using the mortality table, if any, and the interest
 30    rate specified in the contract for determining  the  minimum  paid-up  annuity
 31    benefits guaranteed in the contract.
 32        (6)  For  contracts  which provide cash surrender benefits, such cash sur-
 33    render benefits available prior to maturity shall not be less than the present
 34    value as of the date of surrender of that portion of the maturity value of the
 35    paid-up annuity benefit which would be provided under the contract at maturity
 36    arising from considerations paid prior to the time of cash  surrender  reduced
 37    by  the  amount  appropriate  to reflect any prior withdrawals from or partial
 38    surrenders of the contract, such present value being calculated on  the  basis
 39    of  an  interest  rate not more than one percent (1%) higher than the interest
 40    rate specified in the contract for  accumulating  the  net  considerations  to
 41    determine  such maturity value, decreased by the amount of any indebtedness to
 42    the insurer on the contract, including interest due and accrued, and increased
 43    by any existing additional amounts credited by the insurer to the contract. In
 44    no event shall any cash surrender benefit be less than the minimum  nonforfei-
 45    ture  amount  at that time. The death benefit under such contracts shall be at
 46    least equal to the cash surrender benefit.
 47        (7)  For contracts which do not provide cash surrender benefits, the pres-
 48    ent value of any paid-up annuity benefit available as a  nonforfeiture  option
 49    at any time prior to maturity shall not be less than the present value of that
 50    portion  of  the  maturity value of the paid-up annuity benefit provided under
 51    the contract arising from considerations paid prior to the time  the  contract
 52    is  surrendered  in  exchange  for, or changed to, a deferred paid-up annuity,
 53    such present value being calculated for the period prior to the maturity  date
 54    on  the  basis of the interest rate specified in the contract for accumulating
 55    the net considerations to determine such maturity value, and increased by  any
                                                                        
                                           5
                                                                        
  1    existing  additional amounts credited by the insurer to the contract. For con-
  2    tracts which do not provide any death benefits prior to  the  commencement  of
  3    any  annuity payments, such present values shall be calculated on the basis of
  4    such interest rate and the mortality  table  specified  in  the  contract  for
  5    determining  the maturity value of the paid-up annuity benefit. However, in no
  6    event shall the present value of a paid-up annuity benefit be  less  than  the
  7    minimum nonforfeiture amount at that time.
  8        (8)  For  the purpose of determining the benefits calculated under subsec-
  9    tions (6) and (7) of this section, in the  case  of  annuity  contracts  under
 10    which  an  election  may be made to have annuity payments commence at optional
 11    maturity dates, the maturity date shall  be deemed to be the latest  date  for
 12    which  election shall be permitted by the contract, but shall not be deemed to
 13    be later than the anniversary of the contract next following  the  annuitant's
 14    seventieth  birthday  or  the  tenth anniversary of the contract, whichever is
 15    later.
 16        (9)  Any contract which does not provide cash surrender benefits  or  does
 17    not  provide death benefits at least equal to the minimum nonforfeiture amount
 18    prior to the commencement of any annuity payments shall include a statement in
 19    a prominent place in the contract that such benefits are not provided.
 20        (10) Any paid-up annuity, cash surrender or death  benefits  available  at
 21    any time, other than on the contract anniversary under any contract with fixed
 22    scheduled  considerations, shall be calculated with allowance for the lapse of
 23    time and the payment of any scheduled considerations beyond the  beginning  of
 24    the  contract  year  in which cessation of payment of considerations under the
 25    contract occurs.
 26        (11) For any contract which provides, within the same contract by rider or
 27    supplemental contract provision, both annuity benefits and life insurance ben-
 28    efits that are in excess of the greater of cash surrender benefits or a return
 29    of the gross considerations with interest, the minimum nonforfeiture  benefits
 30    shall  be equal to the sum of the minimum nonforfeiture benefits for the annu-
 31    ity portion and the minimum nonforfeiture  benefits,  if  any,  for  the  life
 32    insurance  portion  computed as if each portion were a separate contract. Not-
 33    withstanding the provisions of subsections (5), (6), (7), (8) and (10) of this
 34    section, additional benefits payable (i) in the event of total  and  permanent
 35    disability, (ii) as reversionary annuity or deferred reversionary annuity ben-
 36    efits,  or (iii) as other policy benefits additional to life insurance, endow-
 37    ment, and annuity benefits, and considerations for all such  additional  bene-
 38    fits,  shall be disregarded in ascertaining the minimum nonforfeiture amounts,
 39    paid-up annuity, cash surrender and death benefits that  may  be  required  by
 40    this  section. The inclusion of such additional benefits shall not be required
 41    in any paid-up benefits, unless  such  additional  benefits  separately  would
 42    require  minimum  nonforfeiture  amounts,  paid-up annuity, cash surrender and
 43    death benefits.
 44        (12) After the effective date of this section any insurer  may  file  with
 45    the director a written notice of its election to comply with the provisions of
 46    this  section  after  a  specified  date  before the second anniversary of the
 47    effective date of this section. After the filing of  such  notice,  then  upon
 48    such  specified  date,  which  shall be the operative date of this section for
 49    such insurer, this section shall become operative with respect to annuity con-
 50    tracts thereafter issued by such insurer. If an insurer makes  no  such  elec-
 51    tion,  the operative date of this section for such insurer shall be the second
 52    anniversary of the effective date of this section.
                                                                        
 53        SECTION 2.  Before January 1, 2006, an insurer may (1)  issue  an  annuity
 54    policy  under the provisions of Section 41-1927A(4), Idaho Code, as those pro-
                                                                        
                                           6
                                                                        
  1    visions were in effect on July 1, 2003; or (2) issue an annuity  policy  under
  2    the  provisions of Section 41-1927A(4), Idaho Code, as those provisions are in
  3    effect on July 1, 2004.  On and after  January  1,  2006,  an  annuity  policy
  4    issued  by  an insurer must comply with the provisions of Section 41-1927A(4),
  5    Idaho Code, as those provisions, including any subsequent amendments  thereto,
  6    are in effect on and after July 1, 2004.

Statement of Purpose / Fiscal Impact


                     STATEMENT  OF  PURPOSE
                            RS 13516
This bill adopts model language developed by the National
Association of Insurance Commissioners (NAIC) relating to
nonforfeiture rates for individual deferred annuities.  Last year,
legislation was enacted that reduced the minimum nonforfeiture
interest rate for deferred annuities from three percent to one and
a half percent due to the low interest rate environment.  That
legislation contained a sunset clause of July 2005 based on the
expectation that the NAIC would approve model language to address
the problem.   This year the NAIC approved model language to
address this issue and this bill amends Section 41-1927A to
incorporate the NAIC model for determining minimum nonforfeiture
rates.


                         FISCAL  IMPACT
There will be no fiscal impact.



CONTACT   
Name:     Martha Hopper
Agency:   Department of Insurance
Phone:    334-4315

Statement of Purpose/Fiscal Impact                     H 496