Chapter 370 Oregon Laws 2003

AN ACT

SB 734

Relating to Standard Nonforfeiture Law for Individual Deferred Annuities; creating new provisions; amending ORS 743.275, 743.278, 743.284, 743.287, 743.290 and 743.295; and repealing ORS 743.281.

Be It Enacted by the People of the State of Oregon:

SECTION 1. ORS 743.275 is amended to read:

743.275. (1) ORS 743.275 to 743.295 may be cited as the Standard Nonforfeiture Law for Individual Deferred Annuities.

[(2) The operative date of the Standard Nonforfeiture Law for Individual Deferred Annuities for an insurer is the earlier of:]

[(a) Two years after October 4, 1977; and]

[(b) The date specified in a written notice filed with the Director of the Department of Consumer and Business Services by the insurer of election to comply with the Standard Nonforfeiture Law for Individual Deferred Annuities as of the specified date.]

[(3)] (2) The Standard Nonforfeiture Law for Individual Deferred Annuities does not apply to:

(a) Reinsurance.

[(a)] (b) [Annuity benefits purchased under] A group annuity policy [issued in conjunction with] purchased under a retirement or deferred compensation plan established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both. This exclusion does not apply, however, to a [retirement or deferred compensation] plan providing individual retirement accounts or individual retirement annuities [governed by] under section 408 of the federal Internal Revenue Code.

[(b)] (c) A premium deposit fund.

[(c)] (d) A variable annuity policy.

[(d)] (e) An investment annuity policy.

[(e)] (f) An immediate annuity policy.

[(f)] (g) A deferred annuity policy [with respect to the period after annuity payments begin] after annuity payments have commenced.

[(g)] (h) A reversionary annuity.

[(h) A policy issued before the operative date of the Standard Nonforfeiture Law for Individual Deferred Annuities for the insurer.]

(i) A policy delivered outside this state through an agent or other representative of the insurer issuing the policy.

SECTION 2. ORS 743.278 is amended to read:

743.278. (1) An annuity policy shall contain in substance the following provisions, or corresponding provisions that in the opinion of the Director of the Department of Consumer and Business Services are at least as favorable to the policyholder:

(a) That upon the termination of [consideration payments] considerations under the policy, or upon the written request of the policyholder, the insurer [will] shall grant a paid-up annuity benefit on a plan stipulated in the policy, of the value [required by] specified in ORS 743.284 and 743.287.

(b) That, if the policy provides for a lump sum settlement at maturity or any other time, the insurer [will] shall pay upon surrender of the policy on or before the start of annuity payments, in lieu of a paid-up annuity benefit, a cash surrender benefit of the amount [required by] specified in ORS 743.284 and 743.287. The insurer [shall] may reserve the right to defer the payment of the cash surrender benefit for a period [of] not to exceed six months after demand therefor with surrender of the policy, if the insurer makes a written request and receives written approval from the director. The request shall address the necessity and equitability to all policyholders of the deferral.

(c) A statement of the mortality table, if any, and interest rates used in calculating any minimum guaranteed paid-up annuity, cash surrender [and] or death benefits that are guaranteed under the policy, together with sufficient information to determine the amount of [such] the benefits.

(d) A statement that any paid-up annuity, cash surrender [and] or death benefits available under the policy are not less than the [minimums required by the statutes of the jurisdiction] minimum benefits required by any statute of the state in which the policy is delivered[, with] and an explanation of the manner in which [such] the benefits are altered by the existence of any additional amounts credited by the insurer to the policy, any indebtedness to the insurer on the policy or any prior withdrawals from or partial surrenders of the policy.

(2) Notwithstanding subsection (1) of this section, [the] a deferred annuity policy may provide that if no [consideration payments] considerations have been received for two full years and the portion of the paid-up annuity benefit at maturity on the plan stipulated in the policy[,] arising from [the] prior considerations paid [before such two-year period, is] would be less than $20 monthly, the insurer at its option may terminate the policy by payment in cash of the then present value of the portion of the paid-up annuity benefit. [Such] The value shall be calculated on the basis of the mortality table, if any, and the interest rate specified in the policy for [calculating] determining the paid-up annuity benefit. By this payment the insurer [will] shall be relieved of further obligations under the policy.

SECTION 3. Section 4 of this 2003 Act is added to and made a part of ORS 743.275 to 743.295.

SECTION 4. (1) The minimum values as specified in ORS 743.284 and 743.287 of any paid-up annuity, cash surrender or death benefits available under an annuity policy shall be based on minimum nonforfeiture amounts as described in this section.

(2) The minimum nonforfeiture amount at or prior to the commencement of any annuity payments shall be equal to an accumulation up to that time at rates of interest as indicated in subsection (4) of this section of the net considerations previously paid, decreased by the sum of the following:

(a) Any prior withdrawals from or partial surrenders of the contract accumulated at rates of interest as indicated in subsection (4) of this section;

(b) An annual contract charge of $50, accumulated at rates of interest as indicated in subsection (4) of this section;

(c) Any premium tax paid by the insurer for the policy, accumulated at rates of interest as indicated in subsection (4) of this section; and

(d) The amount of any indebtedness to the insurer on the policy, including interest due and accrued.

(3) For purposes of subsection (2) of this section, the net considerations for a given policy year used to define the minimum nonforfeiture amount shall be an amount equal to 87.5 percent of the gross considerations credited to the policy during that policy year.

(4)(a) 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 rate established under paragraph (b) of this subsection. The rates established shall be specified in the policy if the interest rate is reset.

(b) The following provisions apply to the rate:

(A) The rate shall be the five-year constant maturity treasury rate reported by the Federal Reserve as of a date certain or an average over a period, rounded to the nearest one-twentieth of one percent, that is specified in the policy and that is no longer than 15 months prior to the policy issue date or redetermination date under paragraph (c) of this subsection, reduced by 125 basis points.

(B) The resulting interest rate under subparagraph (A) of this paragraph may not be less than one percent.

(c) The interest rate shall apply to an initial period and may be redetermined for additional periods. The redetermination date, basis and period, if any, shall be stated in the policy. The basis is the date certain or an average over a specified period that produces the value of the five-year constant maturity treasury rate to be used at each redetermination date.

(5) During the period or term that a policy provides substantive participation in an equity indexed benefit, it may increase the reduction described in subsection (4)(b) of this section by up to an additional 100 basis points to reflect the value of the equity index benefit. The present value on the policy issue date and at each redetermination date thereafter, may not exceed the market value of the benefit. The Director of the Department of Consumer and Business Services may require a demonstration that the present value of the additional reduction does not exceed the market value of the benefit. If a demonstration is not acceptable to the director, the director may disallow or limit the additional reduction.

(6) The director may adopt rules to implement subsection (5) of this section and to provide for further adjustments to the calculation of minimum nonforfeiture amounts for policies that provide substantive participation in an equity index benefit and for other policies that the director determines justify an adjustment.

SECTION 5. ORS 743.284 is amended to read:

743.284. (1) Any paid-up annuity benefit available under an annuity policy shall be such that its present value on the date annuity payments are to commence is at least equal to the minimum nonforfeiture amount on that date. [Such] The present value shall be computed using the mortality table, if any, and the interest rate specified in the policy for determining the minimum [guaranteed] paid-up annuity benefits guaranteed in the policy.

(2) For annuity policies that provide cash surrender benefits, [such] the cash surrender benefits available prior to maturity shall [be an amount] not be less than the present value [on] as of the date of surrender of the portion of the policy maturity value of [its] the paid-up annuity [benefits] benefit that [arises] would be provided under the policy at maturity arising from considerations paid [before the] prior to the time of cash surrender, reduced by appropriate amounts reflecting any previous withdrawals from or partial surrenders of the policy. [Such] The present value shall be calculated using an interest rate not more than one percent higher than the interest rate specified in the policy for accumulating the net considerations to determine [such policy] maturity value, shall be decreased by the amount of any indebtedness to the insurer on the policy, including interest due and accrued, and shall be increased by any existing additional amounts credited by the insurer to the policy. In no event shall the cash surrender benefit be less than the minimum nonforfeiture amount on the date of surrender. The death benefit under an annuity policy that provides cash surrender benefits shall be at least equal to the cash surrender benefit.

(3) For annuity policies that do not provide cash surrender benefits, the present value of the paid-up annuity benefit available as a nonforfeiture option at any time prior to maturity [shall] may not be less than the present value of the portion of the [policy] maturity value of [its] the paid-up annuity benefits [that arises] provided under the policy arising from considerations paid before the policy is surrendered in exchange for, or changed to, a deferred paid-up annuity. [Such] The present value shall be calculated for the period prior to the maturity date on the basis of the interest rate specified in the policy for accumulating the net considerations to determine the [policy maturity] value, and shall be increased by any [existing] additional amounts credited by the insurer to the policy. For [such] annuity policies that [also] do not provide any death benefits before annuity payments start, [such] present [value] values shall be calculated on the basis of such interest rate and the mortality table specified in the policy for determining the [policy] maturity value of [its] paid-up annuity benefit. In no event, however, shall the present value of a paid-up annuity benefit be less [at any time] than the minimum nonforfeiture amount at that time.

SECTION 6. ORS 743.287 is amended to read:

743.287. (1) For the purpose of determining the benefits calculated under ORS 743.284 (2) and (3) in the case of annuity policies under which an election may be made to have annuity payments commence at optional maturity dates, the maturity date shall be considered to be the latest date for which such election is permitted by the policy, but not later than [the later of] the policy anniversary next following the annuitant’s 70th birthday [and] or the 10th anniversary of the policy, whichever is later.

(2) Any paid-up annuity, cash surrender [and] or death benefits available at any time, other than on [a] the policy anniversary of a policy with fixed scheduled [amounts of consideration payments] considerations, shall be calculated with allowance for the lapse of time and the payment of any scheduled considerations beyond the start of the policy year in which termination of [consideration payments] considerations occurs.

SECTION 7. ORS 743.290 is amended to read:

743.290. An annuity policy that does not provide cash surrender benefits[,] or [that] does not provide death benefits at least equal to the minimum nonforfeiture amount prior to the start of annuity payments[,] shall include a [prominent statement to that effect] statement in a prominent place in the policy that the benefits are not provided.

SECTION 8. ORS 743.295 is amended to read:

743.295. (1) For an annuity policy that includes, by rider or [otherwise,] supplemental contract provision, both annuity benefits and life insurance benefits that exceed the greater of [the] cash surrender [benefit and the] benefits or a return of the gross considerations with interest, the minimum nonforfeiture benefits shall equal the sum of the minimum nonforfeiture benefits for the annuity portion and the minimum nonforfeiture benefits, if any, for the life insurance portion, computed as if each portion were a separate policy.

(2) Notwithstanding ORS 743.284 and 743.287, additional benefits payable in the event of total and permanent disability, as reversionary annuity or deferred reversionary annuity benefits, or as other policy benefits additional to life insurance, endowment and annuity benefits, and considerations for all such additional benefits, shall be disregarded in ascertaining the minimum nonforfeiture amounts and paid-up annuity, cash surrender and death benefits required by the Standard Nonforfeiture Law for Individual Deferred Annuities. The inclusion of such [additional] benefits [shall] may not be required in any paid-up benefits unless the additional benefits would separately require minimum nonforfeiture amounts and paid-up annuity, cash surrender and death benefits.

SECTION 9. ORS 743.281 is repealed.

SECTION 10. (1) Before January 1, 2006, an insurer may:

(a) Issue an annuity policy under ORS 743.275 to 743.295 as those provisions were in effect on December 31, 2002; or

(b) Issue an annuity policy under ORS 743.275 to 743.295 as those provisions are in effect on January 1, 2004.

(2) On or after January 1, 2006, an insurer must issue an annuity policy under ORS 743.275 to 743.295 as those provisions are in effect on or after January 1, 2004.

Approved by the Governor June 13, 2003

Filed in the office of Secretary of State June 13, 2003

Effective date January 1, 2004

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