No. 38090 (Amendment): Rule R590-229. Annuity Disclosure

(Amendment)

DAR File No.: 38090
Filed: 11/01/2013 12:09:46 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

This rule is being amended to update the incorporated National Association of Insurance Commissioners (NAIC) annuity buyer's guides to the 2013 versions.

Summary of the rule or change:

In 2013, the buyer's guides were updated from the 2007 version. There are now three versions: annuities in general, fixed annuities, and variable annuities.

State statutory or constitutional authorization for this rule:

• Section 31A-22-425

This rule or change incorporates by reference the following material:

• Updates Buyer's Guide for Deferred Annuities, published by National Association of Insurance Commissioners (NAIC), 2013
• Adds Buyer's Guide for deferred Annuities - Fixed, published by National Association of Insurance Commissioners (NAIC), 2013
• Adds Buyer's Guide for Deferred Annuities - Variable, published by National Association of Insurance Commissioners (NAIC), 2013

Anticipated cost or savings to:

the state budget:

Companies will not be required to make any filings with the department so there will be no additional workload for the department, nor will there be any costs or savings to the department. The amendments simply note the change from one buyer's guide to three with their names and publication information.

local governments:

The changes to this rule do not affect local government. They deal solely with the relationship between the department and its licensees.

small businesses:

The changes to this rule will have no cost or savings for small businesses. They will affect insurance companies selling annuity coverage.

persons other than small businesses, businesses, or local governmental entities:

With the change of the annuity buyer's guide to the new versions, insurance companies can either continue to purchase hard copies from the National Association of Insurance Commissioners (NAIC) for $0.75 to $0.80 each, or they can purchase an electronic version by paying a license fee of $500 for each version, as well as royalty fees of from $250 to $25,600, depending on quantity. Individuals purchasing this coverage will not be affected financially by this change.

Compliance costs for affected persons:

With the change of the annuity buyer's guide to the new versions, insurance companies can either continue to purchase hard copies from the NAIC for $0.75 to $0.80 each, or they can purchase an electronic version by paying a license fee of $500 for each version, as well as royalty fees of from $250 to $25,600, depending on quantity. Individuals purchasing this coverage will not be affected financially by this change.

Comments by the department head on the fiscal impact the rule may have on businesses:

Insurance companies will need to replace the annuity booklets they have on hand with new hard copies or electronic versions.

Todd E. Kiser, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Administration
Room 3110 STATE OFFICE BLDG
450 N MAIN ST
SALT LAKE CITY, UT 84114-1201

Direct questions regarding this rule to:

• Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

12/16/2013

This rule may become effective on:

12/23/2013

Authorized by:

Todd Kiser, Commissioner

RULE TEXT

R590. Insurance, Administration.

R590-229. Annuity Disclosure.

R590-229-4. Incorporation by reference.

The following Buyer's Guides are hereby incorporated by reference within this rule:

(1) "Buyer's Guide for Deferred Annuities" dated 2013, as adopted by and available from the National Association of Insurance Commissioners;

(2) "Buyer's Guide for Deferred Annuities - Fixed" dated 2013, as adopted by and available from the National Association of Insurance Commissioners ; and

(3) "Buyer's Guide for Deferred Annuities - Variable" dated 2013 as adopted by and available from the National Association of Insurance Commissioners .

 

R590-229-5.  Definitions.

In addition to the definitions in Section 31A-1-301, the following definitions shall apply for the purpose of this rule:

(1) "Buyer's Guide" means a document which contains, and is limited to, the language contained in the "Buyer's Guide [to]for Fixed Deferred Annuities ,"[ and its "Appendix I Equity-Indexed Annuities," ]dated [1998]2013, the Buyer's Guide for Fixed Deferred Annuities - Fixed" dated 2013, and the "Buyer's Guide for Fixed Deferred Annuities - Variable" dated 2013[as adopted by, and available from the National Association of Insurance Commissioners, which are incorporated in this rule by reference or go to the department's website].

(2) "Contract owner" means the owner named in the annuity contract or certificate holder in the case of a group annuity contract.

(3) "Determinable elements" means elements that are derived from processes or methods that are guaranteed at issue and not subject to company discretion, but where the values or amounts cannot be determined until some point after issue. These elements include the premiums, credited interest rates with any applicable bonus, benefits, values, non-interest based credits, charges or elements of formulas used to determine any of these. These elements may be described as guaranteed but not determined at issue. An element is considered determinable if all of the underlying elements that go into its calculation are either guaranteed or determinable.

(4) "Disclosure document" means the document described in Subsection 6(2) of this rule.

(5) "Funding agreement" means an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies.

(6) "Generic name" means a short title descriptive of the annuity contract being applied for such as "single premium deferred annuity".

(7) "Guaranteed elements" means premiums, credited interest rates with any applicable bonus, benefits, values, non-interest based credits, charges or elements of formulas used to determine any of these, that are guaranteed and determined at issue. An element is considered guaranteed if all of the underlying elements that go into its calculation are guaranteed.

(8) "Non-guaranteed elements" means the premiums, credited interest rates with any applicable bonus, benefits, values, non-interest based credits, charges or elements of formulas used to determine any of these that are subject to company discretion and are not guaranteed at issue. An element is considered non-guaranteed if any of the underlying elements that go into its calculation are non-guaranteed.

(9) "Structured settlement annuity" means a "qualified funding asset" as defined in IRC Section 130(d) or an annuity that would be a qualified funding asset under IRC Section 130(d) but for the fact that it is not owned by an assignee under a qualified assignment.

 

R590-229-[5]6. Appropriate Buyer's Guide.

(1) [Where an application for an equity-indexed annuity is taken, t]The "Buyer's Guide [to]for Fixed Deferred Annuities" [with "Appendix I for Equity-Indexed Annuities" ]shall be [the Buyer's Guide given to the applicant and will be ]considered the appropriate Buyer's Guide for[ the]an annuity product.

(2) [For all other annuity products,]Notwithstanding Subsection (1):

(a) for a fixed non-variable annuity product, the "Buyer's Guide to Fixed Deferred Annuities - Fixed" [with or without "Appendix I Equity-Indexed Annuities" will be considered the appropriate Buyer's Guide]may be used as the appropriate Buyer's Guide; and

(b) for a variable annuity product, the "Buyer's Guide for Fixed Deferred Annuities - Variable" may be used as the appropriate Buyer's Guide.

 

R590-229-[6]7. Standards for the Disclosure Document and Buyer's Guide.

(1)(a) Where the application for an annuity contract is taken in a face-to-face meeting, the applicant shall, at or before the time of application, be given both the disclosure document described in Subsection [6]7(2) of this section and the appropriate Buyer's Guide, as described in Section [5]6.

(b) Where the application for an annuity contract is taken by means other than in a face-to-face meeting, the applicant shall be sent both the disclosure document and the appropriate Buyer's Guide no later than five business days after the completed application is received by the insurer.

(i) With respect to an application received as a result of a direct solicitation through the mail:

(A) providing a Buyer's Guide in a mailing inviting prospective applicants to apply for an annuity contract shall be deemed to satisfy the requirement that the appropriate Buyer's Guide be provided no later than five business days after receipt of the application; and

(B) providing a disclosure document in a mailing inviting a prospective applicant to apply for an annuity contract shall be deemed to satisfy the requirement that the disclosure document be provided no later than five business days after receipt of the application.

(ii) With respect to an application received via the Internet:

(A) taking reasonable steps to make the appropriate Buyer's Guide available for viewing and printing on the insurer's website shall be deemed to satisfy the requirement that the appropriate Buyer's Guide be provided no later than five business days of receipt of the application; and

(B) taking reasonable steps to make the disclosure document available for viewing and printing on the insurer's website shall be deemed to satisfy the requirement that the disclosure document be provided no later than five business days after receipt of the application.

(c) A solicitation for an annuity contract provided in other than a face-to-face meeting shall include a statement that the prospective applicant can obtain from the insurer a free annuity Buyer's Guide upon request.

(2) At a minimum, the following information shall be included in the disclosure document required to be provided under this rule:

(a) the generic name of the contract, the company product name, if different, the form number, and the fact that it is an annuity;

(b) the insurer's name and address;

(c) a description of the contract and its benefits, emphasizing its long-term nature, including examples where appropriate of:

(i) the guaranteed, non-guaranteed and determinable elements of the contract, and their limitations, if any, and an explanation of how they operate;

(ii) an explanation of the initial crediting rate, specifying any bonus or introductory portion, the duration of the rate and the fact that rates may change from time to time and are not guaranteed;

(iii) periodic income options, both on a guaranteed and non-guaranteed basis;

(iv) any value reductions caused by withdrawals from or surrender of the contract;

(v) how values in the contract can be accessed;

(vi) the death benefit, if available, and how it will be calculated;

(vii) a summary of the federal tax status of the contract and any penalties applicable on withdrawal of values from the contract; and

(viii) impact of any rider, such as a long-term care rider;

(d) specific dollar amount or percentage charges and fees shall be listed with an explanation of how they apply; and

(e) information about the current guaranteed rate for a new contract that contains a clear notice that the rate is subject to change.

(3) An insurer shall define terms used in the disclosure statement in language that facilitates the understanding by a typical person within the segment of the public to which the disclosure statement is directed.

 

R590-229-[7]8. Report to Contract Owners.

For an annuity in the payout period with changes in non-guaranteed elements and for the accumulation period of a deferred annuity, the insurer shall provide the contract owner with a report, at least annually, on the status of the contract that contains at least the following information:

(1) the beginning and end date of the current report period;

(2) the accumulation and cash surrender value, if any, at the end of the previous report period and at the end of the current report period;

(3) the total amounts, if any, that have been credited, charged to the contract value, or paid during the current report period; and

(4) the amount of outstanding loans, if any, as of the end of the current report period.

 

R590-229-[8]9. Enforcement Date.

The commissioner will begin enforcing the provisions of this rule 45 days after the effective[on the] date [ this rule goes into effect].

 

R590-229-[9]10. Severability.

If any provision or clause of this rule or its application to any person or situation is held invalid, such invalidity shall not affect any other provision or application of this rule which can be given effect without the invalid provision or application, and to this end the provisions of this rule are declared to be severable.

 

KEY: insurance, annuity disclosure

Date of Enactment or Last Substantive Amendment: [October 7, 2004]2013

Notice of Continuation: September 22, 2009

Authorizing, and Implemented or Interpreted Law: 31A-2-201; 31A-22-425

 

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