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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
]]]] 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
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