§431:10D-107  Standard nonforfeiture law;individual deferred annuities.  [This section is effective July 1, 2006but may be applied to annuity contracts on a contract form-by-contract formbasis beginning July 1, 2004.  L 2004, c 15, §4(2), (3).]  (a)  Thissection shall be known as the Standard Nonforfeiture Law for IndividualDeferred Annuities.

(b)  This section shall not apply to:

(1)  Any reinsurance;

(2)  Group annuity purchased under a retirement planor plan of deferred compensation established or maintained by an employer(including a partnership or sole proprietorship) or by an employeeorganization, or by both, other than a plan providing individual retirementaccounts or individual retirement annuities under section 408 of the InternalRevenue Code, as amended;

(3)  Any premium deposit fund, variable annuity,investment annuity, immediate annuity, any deferred annuity contract afterannuity payments have commenced, or reversionary annuity; or

(4)  Any contract which shall be delivered outside thisState through a producer or other representative of the insurer issuing thecontract.

(c)  In the case of contracts issued on orafter July 1, 2006, no contract of annuity, except as stated in subsection (b),shall be delivered or issued for delivery in this State unless it contains insubstance the following provisions, or corresponding provisions which in theopinion of the commissioner are at least as favorable to the contract holderupon cessation of payment of considerations under the contract:

(1)  That upon cessation of payment of considerationsunder a contract, or upon the written request of the contract owner, theinsurer will grant a paid-up annuity benefit on a plan stipulated in thecontract of such value as is specified in subsections (g), (h), (i), (j), and(l);

(2)  If a contract provides for a lump sum settlementat maturity, or at any other time, that upon surrender of the contract at orprior to the commencement of any annuity payments, the insurer will pay in lieuof any paid-up annuity benefit a cash surrender benefit of the amount asspecified in subsections (g), (h), (j), and (l).  The insurer shall reserve theright to defer the payment of the cash surrender benefit for a period notexceeding six months after demand therefor with surrender of the contract aftermaking written request and receiving written approval of the commissioner.  Therequest shall address the necessity and equitability to all policyholders ofthe deferral;

(3)  A statement of the mortality table, if any, and interestrates used in calculating any minimum paid-up annuity, cash surrender, or deathbenefits that are guaranteed under the contract, together with sufficientinformation to determine the amounts of the benefits; and

(4)  A statement that any paid-up annuity, cashsurrender, or death benefits that may be available under the contract are notless than the minimum benefits required by any statute of the state in whichthe contract is delivered, and an explanation of the manner in which thebenefits are altered by the existence of any additional amounts credited by theinsurer to the contract, any indebtedness to the insurer on the contract, orany prior withdrawals from or partial surrenders of the contract.

Notwithstanding the requirements of this subsection,any deferred annuity contract may provide that if no considerations have beenreceived under a contract for a period of two full years and the portion of thepaid-up annuity benefit at maturity on the plan stipulated in the contractarising from considerations paid would be less than $20 monthly, the insurermay at its option terminate the contract by payment in cash of the then presentvalue of the portion of the paid-up annuity benefit, calculated on the basis ofthe mortality table, if any, and interest rate specified in the contract fordetermining the paid-up annuity benefit, and by the payment shall be relievedof any further obligation under the contract.

(d)  The minimum values as specified insubsections (g), (h), (i), (j), and (l), of any paid-up annuity, cashsurrender, or death benefits available under an annuity contract shall be basedupon minimum nonforfeiture amounts as defined in this subsection.  The minimumnonforfeiture amount at any time at or prior to the commencement of any annuitypayments shall be equal to an accumulation up to that time at rates of interestas indicated in subsection (e) of the net considerations paid prior to thattime, decreased by the sum of:

(1)  Any prior withdrawals from or partial surrendersof the contract accumulated at a rate of interest as indicated in subsection(e);

(2)  An annual contract charge of $50, accumulated atrates of interest as indicated in subsection (e);

(3)  Any premium tax paid by the insurer for thecontract, accumulated at rates of interest as indicated in subsection (e); and

(4)  The amount of any indebtedness to the company onthe contract, including interest due and accrued.

The net considerations for a given contractyear used to define the minimum nonforfeiture amount shall be an amount equalto eighty-seven and five-tenths per cent of the gross considerations creditedto the contract during the contract year.

(e)  The interest rate used in determiningminimum nonforfeiture amounts shall be an annual rate of interest determined asthe lesser of three per cent a year and the following, which shall be specifiedin the contract if the interest rate will be reset:

(1)  The five-year constant maturity treasury ratereported by the Federal Reserve as of a date, or average over a period, roundedto the nearest one-twentieth of one per cent, specified in the contract notlater than fifteen months prior to the contract issue date or redeterminationdate under paragraph (4);

(2)  Reduced by one hundred twenty-five basis points;

(3)  Where the resulting interest rate is not lessthan one per cent; and

(4)  The interest rate shall apply for an initialperiod and may be redetermined for additional periods.  The redeterminationdate, basis, and period, if any, shall be stated in the contract.  As used inthis paragraph, "basis" means the date or average over a specifiedperiod that produces the value of the five-year constant maturity treasury rateto be used at each redetermination date.

(f)  During the period or term that a contractprovides substantive participation in an equity indexed benefit, it mayincrease the reduction described in subsection (e)(2) by up to an additionalone hundred basis points to reflect the value of the equity index benefit.  Thepresent value at the contract issue date, and at each subsequentredetermination date, of the additional reduction shall not exceed the marketvalue of the benefit.  The commissioner may require a demonstration that thepresent value of the additional reduction does not exceed the market value ofthe benefit.  Lacking such a demonstration that is acceptable to thecommissioner, the commissioner may disallow or limit the additional reduction. The commissioner may adopt rules to implement this subsection and provide forfurther adjustments to the calculation of minimum nonforfeiture amounts forcontracts that provide substantive participation in an equity index benefit andfor other contracts that the commissioner determines adjustments are justified.

(g)  Any paid-up annuity benefit available undera contract shall be such that its present value on the date annuity paymentsare to commence is at least equal to the minimum nonforfeiture amount on thatdate.  The present value shall be computed using the mortality table, if any,and the interest rate specified in the contract for determining the minimumpaid-up annuity benefits guaranteed in the contract.

(h)  For contracts which provide cash surrenderbenefits, the cash surrender benefits available prior to maturity shall not beless than the present value as of the date of surrender of that portion of thematurity value of the paid-up annuity benefit which would be provided under thecontract at maturity arising from considerations paid prior to the time of cashsurrender reduced by the amount appropriate to reflect any prior withdrawalsfrom or partial surrenders of the contract, the present value being calculatedon the basis of an interest rate not more than one per cent higher than theinterest rate specified in the contract for accumulating the net considerationsto determine the maturity value, decreased by the amount of any indebtedness tothe insurer on the contract, including interest due and accrued, and increasedby any existing additional amounts credited by the insurer to the contract.  Inno event shall any cash surrender benefit be less than the minimumnonforfeiture amount at that time.  The death benefit under these contractsshall be at least equal to the cash surrender benefit.

(i)  For contracts which do not provide cashsurrender benefits, the present value of any paid-up annuity benefit availableas a nonforfeiture option at any time prior to maturity shall not be less thanthe present value of that portion of the maturity value of the paid-up annuitybenefit provided under the contract arising from considerations paid prior tothe time the contract is surrendered in exchange for, or changed to, a deferredpaid-up annuity, the present value being calculated for the period prior to thematurity date on the basis of the interest rate specified in the contract foraccumulating the net considerations to determine the maturity value, andincreased by any existing additional amounts credited by the insurer to thecontract.  For contracts which do not provide any death benefits prior to thecommencement of any annuity payments, the present values shall be calculated onthe basis of the interest rate and the mortality table specified in thecontract for determining the maturity value of the paid-up annuity benefit. However, in no event shall the present value of a paid-up annuity benefit beless than the minimum nonforfeiture amount at that time.

(j)  For the purpose of determining thebenefits calculated under subsections (h) and (i), in the case of annuitycontracts under which an election may be made to have annuity payments commenceat optional maturity dates, the maturity date shall be the latest date forwhich election shall be permitted by the contract, but shall not be later thanthe anniversary of the contract next following the annuitant's seventiethbirthday or the tenth anniversary of the contract, whichever is later.

(k)  Any contract which does not provide cashsurrender benefits or does not provide death benefits at least equal to theminimum nonforfeiture amount prior to the commencement of any annuity paymentsshall include a statement in a prominent place in the contract that thebenefits are not provided.

(l)  Any paid-up annuity, cash surrender, ordeath benefits available at any time, other than on the contract anniversaryunder any contract with fixed scheduled considerations, shall be calculatedwith allowance for the lapse of time and the payment of any scheduledconsideration beyond the beginning of the contract year in which cessation ofpayment of considerations under the contract occurs.

(m)  For any contract which provides, withinthe same contract by rider or supplemental contract provision, both annuitybenefits and life insurance benefits that are in excess of the greater of cashsurrender benefits or a return of the gross considerations with interest, theminimum nonforfeiture benefits shall be equal to the sum of the minimumnonforfeiture benefits for the annuity portion and the minimum nonforfeiturebenefits, if any, for the life insurance portion computed as if each portionwere a separate contract.  Notwithstanding subsections (g), (h), (i), (j), and(l), additional benefits payable in the event of total and permanentdisability, as reversionary annuity or deferred reversionary annuity benefits,or as other policy benefits additional to life insurance, endowment, andannuity benefits, and considerations for all such additional benefits, shall bedisregarded in ascertaining minimum nonforfeiture amounts, paid-up annuity,cash surrender, and death benefits that may be required by this section.  Theinclusion of additional benefits shall not be required in any paid-up benefits,unless these additional benefits separately would require minimum nonforfeitureamounts, paid-up annuity, cash surrender, and death benefits. [L 1987, c 347,pt of §2; am L 2002, c 155, §70 and c 210, §1; am L 2004, c 15, §2]