By: Eiland (Senate Sponsor - Ellis) H.B. No. 1293
(In the Senate - Received from the House April 23, 2009;
May 1, 2009, read first time and referred to Committee on State
Affairs; May 14, 2009, reported adversely, with favorable
Committee Substitute by the following vote: Yeas 9, Nays 0;
May 14, 2009, sent to printer.)
COMMITTEE SUBSTITUTE FOR H.B. No. 1293 By: Ellis
A BILL TO BE ENTITLED
AN ACT
relating to the sale and marketing of life insurance and annuities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle A, Title 7, Insurance Code, is amended
by adding Chapter 1116 to read as follows:
CHAPTER 1116. DISCLOSURE OF INFORMATION REGARDING ANNUITY
TRANSACTIONS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1116.001. PURPOSES. The purpose of this chapter is to:
(1) protect consumers and foster consumer education by
providing standards for the disclosure of certain minimum
information about annuity contracts; and
(2) ensure that purchasers of annuity contracts
understand certain basic features of annuity contracts.
Sec. 1116.002. GENERAL DEFINITIONS. In this chapter:
(1) "Buyer's guide" means a buyer's guide published or
adopted by the department under Section 1116.006.
(2) "Charitable gift annuity" has the meaning assigned
by Section 102.001.
(3) "Contract owner" means the owner named in the
annuity contract or, in the case of a group annuity contract, the
certificate holder.
(4) "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.
(5) "Generic name" means a short title descriptive of
the annuity contract being illustrated or for which an applicant is
applying, such as "single premium deferred annuity."
(6) "Structured settlement annuity" means:
(A) a "qualified funding asset," as defined by
Section 130(d), Internal Revenue Code of 1986; or
(B) an annuity that would be a qualified funding
asset but for the fact that the annuity is not owned by an assignee
under a qualified assignment.
Sec. 1116.003. DETERMINABLE ELEMENTS. (a) For purposes of
this chapter, "determinable elements" means elements derived from
processes or methods that are guaranteed at issue and are not
subject to company discretion, but for which the values or amounts
cannot be determined until some point after issue. The term
includes:
(1) premiums;
(2) credited interest rates, including any bonus;
(3) benefits;
(4) values;
(5) noninterest based credits;
(6) charges; and
(7) elements of formulas used to determine any element
described by Subdivisions (1)-(6).
(b) Determinable elements may be described as guaranteed
but not determined at issue. An element is considered determinable
if the element was computed from only underlying determinable
elements, or from both determinable and guaranteed elements.
Sec. 1116.004. GUARANTEED AND NONGUARANTEED ELEMENTS. (a)
For purposes of this chapter, "guaranteed element" means an element
listed in Sections 1116.003(a)(1)-(7) that is guaranteed and
determined at issue. An element is considered guaranteed if all of
the underlying elements used in its computation are guaranteed.
(b) For purposes of this chapter, "nonguaranteed element"
means an element listed in Sections 1116.003(a)(1)-(7) that is
subject to the insurer's discretion and is not guaranteed at issue.
An element is considered nonguaranteed if any underlying element
used in its computation is nonguaranteed.
Sec. 1116.005. APPLICABILITY; SCOPE. (a) Except as
provided by Subsection (b), this chapter applies to all group and
individual annuity contracts and certificates.
(b) This chapter does not apply to:
(1) immediate and deferred annuities that do not
contain elements that are nonguaranteed;
(2) annuities used to fund:
(A) an employee pension plan subject to the
Employee Retirement Income Security Act of 1974 (29 U.S.C. Section
1001 et seq.);
(B) a plan described by Section 401(a), 401(k),
or 403(b), Internal Revenue Code of 1986, in which the plan, for
purposes of the Employee Retirement Income Security Act of 1974 (29
U.S.C. Section 1001 et seq.), is established or maintained by an
employer;
(C) a governmental or church plan as defined by
Section 414, Internal Revenue Code of 1986, or a deferred
compensation plan of a state or local government or a tax-exempt
organization under Section 457, Internal Revenue Code of 1986; or
(D) a nonqualified deferred compensation
arrangement established or maintained by an employer or plan
sponsor;
(3) a structured settlement annuity;
(4) a charitable gift annuity qualified under Chapter
102;
(5) a funding agreement; or
(6) an annuity contract used to fund a contract for
prepaid funeral benefits, as defined by Chapter 154, Finance Code.
(c) This chapter applies to an annuity used to fund a plan or
arrangement that is funded solely by contributions an employee
elects to make, whether on a pretax or after-tax basis, if the
insurer has been notified that plan participants may choose from
among two or more fixed annuity providers 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" does not include a meeting held by a producer
solely for the purpose of educating or enrolling employees in the
plan or arrangement.
Sec. 1116.006. BUYER'S GUIDES. (a) The commissioner by
rule shall adopt buyer's guides for consumers who are considering
purchasing an annuity contract or certificate.
(b) In adopting buyer's guides under this section, the
commissioner may adopt the buyer's guides published by the National
Association of Insurance Commissioners or similar comprehensive
guides produced by the department or published by national
insurance organizations recognized by the commissioner. If a
buyer's guide to a particular type of annuity has not been adopted
nationally, the commissioner may not adopt a buyer's guide for that
type of annuity.
Sec. 1116.007. EFFECT ON OTHER LAW. Compliance with this
chapter or rules implementing this chapter is not an affirmative
defense in any action brought by or for the department alleging a
violation of Chapter 541, 1114, or 1115.
[Sections 1116.008-1116.050 reserved for expansion]
SUBCHAPTER B. DISCLOSURES AND DISCLOSURE STANDARDS
Sec. 1116.051. STANDARDS FOR DISCLOSURE DOCUMENT AND
BUYER'S GUIDE. (a) If an application for an annuity contract or
certificate is taken in a face-to-face meeting, the applicant shall
be given, at or before the time of application, both the disclosure
document described by Section 1116.052 and the appropriate buyer's
guide.
(b) If the application 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 not later
than the fifth business day after the date on which the completed
application is received by the insurer.
(c) If the application is received as a result of a direct
solicitation through the mail, providing the appropriate buyer's
guide and the disclosure document in a mailing inviting prospective
applicants to apply for an annuity contract or certificate is
considered to satisfy the requirement that the appropriate buyer's
guide and the disclosure document be provided not later than the
fifth business day after the date of receipt of the application.
(d) If the application is received through the Internet,
taking reasonable steps to ensure that the appropriate buyer's
guide and the disclosure document are available for viewing and
printing on the insurer's website is considered to satisfy the
requirement that the appropriate buyer's guide and the disclosure
document be provided not later than the fifth business day after the
date of receipt of the application.
(e) A solicitation for an annuity contract that is provided
in a manner other than a face-to-face meeting must include a
statement that the proposed applicant may contact the department
for a free annuity buyer's guide or that the prospective applicant
may contact the insurer for a free annuity buyer's guide.
(f) If the appropriate buyer's guide and the disclosure
document are not provided at or before the time of application, a
free look period of at least 15 days must be provided during which
the applicant may return the annuity contract without penalty.
This period shall run concurrently with any other free look period
required under this code or another law of this state. An
unconditional refund without penalty for purposes of this
subsection for variable or modified guaranteed annuity contracts
shall mean a refund equal to the cash surrender value provided in
the annuity contract, plus any fees or charges deducted from the
premiums or imposed under the contract. The refund and free look
period in this subsection do not apply if the prospective owner is
an accredited investor, as defined in Regulation D as adopted by the
United States Securities and Exchange Commission.
Sec. 1116.052. DISCLOSURE DOCUMENT. (a) At a minimum, the
following information must be included in the disclosure document
required to be provided under this chapter:
(1) the generic name of the contract, the insurer
product name, if different from the generic name, the insurer's
form number, and a statement of the fact that the contract is an
annuity;
(2) the insurer's name and address;
(3) a description of the contract and the benefits
provided under the contract, emphasizing the contract's long-term
nature, and including examples as appropriate;
(4) the guaranteed, nonguaranteed, and determinable
elements of the contract, any limitations of those elements, and an
explanation of how those elements operate;
(5) an explanation of the initial crediting rate,
specifying any bonus or introductory portion, the duration of the
initial crediting rate, and the fact that rates may change from time
to time and are not guaranteed;
(6) periodic income options, both on a guaranteed and
nonguaranteed basis;
(7) any value reductions caused by withdrawals from or
surrender of the contract;
(8) how values in the contract can be accessed;
(9) the death benefit, if available, and how the death
benefit is computed;
(10) a summary of:
(A) the federal tax status of the contract; and
(B) any penalties applicable on withdrawal of
values from the contract;
(11) the impact of any rider, such as a long-term care
rider;
(12) a list of the specific dollar amount or
percentage charges and fees, with an explanation of how those
charges and fees apply; and
(13) information about the current guaranteed rate for
new contracts that contains a clear notice that the rate is subject
to change.
(b) An insurer shall define terms used in the disclosure
document in language that facilitates the understanding by a
typical person within the segment of the public to which the
disclosure document is directed.
(c) A disclosure document that complies with the Financial
Industry Regulatory Authority (FINRA) Conduct Rules and Securities
and Exchange Commission prospectus requirements satisfies the
requirements of this section for disclosure documents. This
subsection does not limit the commissioner's ability to enforce the
provisions of this section or require the use of a FINRA-approved
disclosure document. This subsection is intended to grant a safe
harbor under this chapter for an annuity contract that is regulated
by, and complies with, the FINRA Conduct Rules and the SEC
prospectus requirements pertaining to disclosure.
Sec. 1116.053. REPORT TO CONTRACT OWNERS. (a) For
annuities in the payout period with changes in nonguaranteed
elements and for the accumulation period of a deferred annuity, the
insurer shall provide each contract owner with a report, at least
annually, on the status of the contract.
(b) The report must contain at least the following
information:
(1) the beginning and ending date of the current
reporting period;
(2) the accumulation and cash surrender value, if any,
at the end of:
(A) the previous reporting period; and
(B) the current reporting period;
(3) the total amounts, if any, that have been
credited, charged to the contract or certificate value, or paid
during the current reporting period; and
(4) the amount of any outstanding loans as of the end
of the current reporting period.
[Sections 1116.054-1116.100 reserved for expansion]
SUBCHAPTER C. ENFORCEMENT
Sec. 1116.101. VIOLATION. A violation of a requirement of
this chapter by an insurer or agent constitutes an unfair or
deceptive act or practice in the business of insurance for purposes
of Chapter 541.
SECTION 2. Section 1114.004(a), Insurance Code, is amended
to read as follows:
(a) Except as otherwise specifically provided by this
chapter, this chapter does not apply to transactions involving:
(1) credit life insurance;
(2) group life insurance or group annuities for which
there is no direct solicitation of individuals by an agent;
(3) [group] life insurance and annuities used to fund
prepaid funeral benefits contracts, as defined by Chapter 154,
Finance Code;
(4) an application to:
(A) exercise a contractual change or a conversion
privilege made to the insurer that issued the existing policy or
contract;
(B) replace an existing policy or contract by the
insurer that issued the existing policy or contract under a program
filed with and approved by the commissioner; or
(C) exercise a term conversion privilege among
corporate affiliates;
(5) life insurance proposed to replace life insurance
under a binding or conditional receipt issued by the same insurer;
(6) a policy or contract used to fund:
(A) an employee pension benefit plan or employee
welfare benefit plan that is covered by the Employee Retirement
Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.);
(B) a plan described by Section 401(a), 401(k),
or 403(b), Internal Revenue Code of 1986, if established or
maintained by an employer;
(C) a government or church plan, as defined by
Section 414, Internal Revenue Code of 1986, a government or church
welfare benefit plan, or a deferred compensation plan of a state or
local government or tax exempt organization described under Section
457, Internal Revenue Code of 1986; or
(D) a nonqualified deferred compensation
arrangement established or maintained by an employer or plan
sponsor;
(7) new coverage provided under a life insurance
policy or contract if the cost is borne wholly by the insured's
employer or by an association of which the insured is a member;
(8) an existing life insurance policy that is a
nonconvertible term life insurance policy scheduled to expire in
five years or less and that cannot be renewed;
(9) immediate annuities purchased with proceeds from
an existing contract; or
(10) structured settlements.
SECTION 3. Section 541.058(b), Insurance Code, is amended
to read as follows:
(b) It is not a rebate or discrimination prohibited by
Section 541.056(a) or 541.057:
(1) for a life insurance or life annuity contract, to
pay a bonus to a policyholder or otherwise abate the policyholder's
premiums in whole or in part out of surplus accumulated from
nonparticipating insurance policies if the bonus or abatement:
(A) is fair and equitable to policyholders; and
(B) is in the best interests of the insurer and
its policyholders;
(2) for a life insurance policy issued on the
industrial debit plan, to make to a policyholder who has
continuously for a specified period made premium payments directly
to the insurer's office an allowance in an amount that fairly
represents the saving in collection expenses;
(3) for a group insurance policy, to readjust the rate
of premium based on the loss or expense experience under the policy
at the end of a policy year if the adjustment is retroactive for
only that policy year;
(4) for a life annuity contract, to waive surrender
charges under the contract when the contract holder exchanges that
contract for another annuity contract issued by the same insurer or
an affiliate of the same insurer that is part of the same holding
company group if:
(A) the waiver and the exchange are fully,
fairly, and accurately explained to the contract holder in a manner
that is not deceptive or misleading; and
(B) the contract holder is given credit for the
time that the prior contract was held when determining any
surrender charges under the new contract;
(5) in connection with an accident and health
insurance policy, to provide to policy or certificate holders, in
addition to benefits under the terms of the insurance contract,
health-related services or health-related information, or to
disclose the availability of those additional services and
information to prospective policy or certificate holders; or
(6) in connection with a health maintenance
organization evidence of coverage, to provide to enrollees, in
addition to benefits under the evidence of coverage, health-related
services or health-related information, or to disclose the
availability of those additional services and information to
prospective enrollees or contract holders.
SECTION 4. Subchapter B, Chapter 1114, Insurance Code, is
amended by adding Section 1114.057 to read as follows:
Sec. 1114.057. DISCLOSURE OF AVAILABILITY OF WAIVER OF
SURRENDER CHARGES. An insurer that offers to waiver surrender
charges consistent with Section 541.058(b)(4) of this code shall
provide reasonable notice of such offer to its prospective or
current contract holders. Such notice may be included through any
available means, including a disclosure document or displayed on a
link that is prominently placed on the insurer's web page.
SECTION 5. The change in law made by this Act applies only
to an application for an annuity contract or certificate, or a
solicitation for an annuity contract, made on or after January 1,
2010. An application for an annuity contract or certificate, or a
solicitation for an annuity contract, made before January 1, 2010,
is governed by the law in effect immediately before the effective
date of this Act, and that law is continued in effect for that
purpose.
SECTION 6. This Act takes effect September 1, 2009.
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