No. 27082: R590-229. Annuity Disclosure

DAR File No.: 27082
Filed: 08/16/2004, 03:56
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

The additional changes resulted from comments received during the latest comment period which was for the first change in proposed rule (CPR).

 

Summary of the rule or change:

The change in R590-229-3 exempts immediate and deferred annuities that contain no nonguaranteed elements from the disclosure requirements. The change in Section R590-229-4 eliminates the requirement of a label on the annuity disclosure. In Subsection R590-229-4(5), the word "not" has been added before the words "based on mortality...." The change in Section R590-229-8 replaces a specific date for the more general wording, "on the date this rule goes into effect." (DAR NOTE: This is the second change in proposed rule (CPR) for R590-229. The original proposed new rule upon which the first CPR was based was published in May 1, 2004, issue of the Utah State Bulletin, on page 12. The first CPR upon which this second CPR is based was published in the July 1, 2004, issue of the Utah State Bulletin, on page 60. Underlining in the rule below indicates text that has been added since the publication of the proposed rule mentioned above; strike-out indicates text that has been deleted. You must view the first CPR, the second CPR, and the proposed new rule together to understand all of the changes that will be enforceable should the agency make this rule effective.)

 

State statutory or constitutional authorization for this rule:

Sections 31A-2-201 and 31A-22-425

 

Anticipated cost or savings to:

the state budget:

The changes to this rule will have no fiscal impact on the Insurance Department. The changes will not increase or decrease the department's workload to the extent it would need to increase or reduce the workforce or revenues.

 

local governments:

The changes to this rule will have no fiscal impact on local government since the rule deals with the relationship of life between insurers their consumers and the regulating entity, the Insurance Department.

 

other persons:

Insurers will not be required to create a disclosure form for their immediate and deferred annuities that contain no nonguaranteed elements. This will save them the cost of development, production, and distribution. The savings will differ from insurer to insurer based on whether or not they subcontract out this work and the number of insureds that will need to receive the disclosure. Consumers should not be affected at all since annuity expenses should not change.

 

Compliance costs for affected persons:

Insurers will not be required to create a disclosure form for their immediate and deferred annuities that contain no nonguaranteed elements. This will save them the cost of development, production, and distribution. The savings will differ from insurer to insurer based on whether or not they subcontract out this work and the number of insureds that will need to receive the disclosure. Consumers should not be affected at all since annuity expenses should not change.

 

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

Due to the elimination of the requirement to provide a disclosure form for certain types of annuities, life insurers selling these products will save the money they would have spent to develop, produce and distribute the disclosure.

 

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:

10/01/2004

 

This rule may become effective on:

10/02/2004

 

Authorized by:

Jilene Whitby, Information Specialist

 

 

RULE TEXT

R590. Insurance, Administration.

R590-229. Annuity Disclosure.

R590-229-3. Scope.

(1) This rule applies to individual and group annuity contracts and certificates except:

[(1)](a) registered or non-registered variable annuities or other registered products;

[(2)(a)](b)(i) annuities used to fund:

[(i)](A) an employee pension plan that is covered by the Employee Retirement Income Security Act (ERISA);

[(ii)](B) a plan described by Internal Revenue Code (IRC) Sections 401(a), 401(k), or 403(b) where the plan is established or maintained by an employer;

[(iii)](C) a government or church plan defined in IRC Section 414 or a deferred compensation plan or a state or local government or a tax exempt organization under IRC Section 457; or

[(iv)](D) a nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

[(b)](ii) Notwithstanding Subsection [(2)(a)](1)(b)(i) of this section, this rule shall apply to annuities used to fund a plan or arrangement that is funded solely by contributions an employee elects to make whether on a pre-tax or after-tax basis and there is a direct solicitation of an individual employee by a producer for the purchase of an annuity contract. As used in this subsection, direct solicitation shall not include any meeting held by a producer solely for the purpose of educating or enrolling employees in the plan or arrangement; and

[(3)](c) structured settlement annuities; and

[(4)](d) funding agreements.

(2) The disclosure document requirements of this rule do not apply to immediate and deferred annuities that contain no nonguaranteed elements.

 

R590-229-4. 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 Fixed Deferred Annuities" and its "Appendix I Equity-Indexed Annuities," dated 1998, 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[ and shall be clearly labeled "Annuity Disclosure."].

(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.

 

R590-229-8. Enforcement Date.

The commissioner will begin enforcing the provisions of this rule [October 1, 2004]on the date this rule goes into effect.

 

KEY: insurance, annuity disclosure

2004

31A-2-201

31A-22-425