Texas 2009 - 81st Regular

Texas House Bill HB1293 Compare Versions

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1	1	By: Eiland H.B. No. 1293
2	2
3	3
4	4	A BILL TO BE ENTITLED
5	5	AN ACT
6	6	relating to certain disclosure standards for certain annuity
7	7	contracts
8	8	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
9	9	SECTION 1. The Insurance Code is amended by adding a new
10	10	Chapter 1116 to read as follow:
11	11	CHAPTER 1116. DISCLOSURE REQUIREMENTS FOR CERTAIN ANNUITY
12	12	TRANSACTIONS
13	13	SUBCHAPTER A. GENERAL PROVISIONS
14	14	Sec. 1116.001. Purpose. The purpose of this chapter is to
15	15	provide standards for the disclosure of certain minimum information
16	16	about annuity contracts to protect consumers and foster consumer
17	17	education. This chapter specifies the minimum information which
18	18	must be disclosed and the method for disclosing it in connection
19	19	with the sale of annuity contracts. The goal of this chapter is to
20	20	ensure that purchasers of annuity contracts understand certain
21	21	basic features of certain annuity contracts.
22	22	Sec. 1116.002. Definitions. In this chapter:
23	23	(1) "Buyer's Guide" means the Buyer's Guide for Fixed
24	24	Deferred Annuities or the Buyer's Guide for Equity Indexed
25	25	Annuities as adopted by the National Association of Insurance
26	26	Commissioners and adopted by the Commissioner by rule as provided
27	27	in this Chapter.
28	28	(2) "Charitable gift annuity" means a transfer of cash or
29	29	other property by a donor to a charitable organization in return for
30	30	an annuity payable over one or two lives, under which the actuarial
31	31	value of the annuity is less than the value of the cash or other
32	32	property transferred and the difference in value constitutes a
33	33	charitable deduction for federal tax purposes, but does not include
34	34	a charitable remainder trust or a charitable lead trust or other
35	35	similar arrangement where the charitable organization does not
36	36	issue an annuity and incur a financial obligation to guarantee
37	37	annuity payments.
38	38	(3) "Contract owner" means the owner named in the annuity
39	39	contract or certificate holder in the case of a group annuity
40	40	contract.
41	41	(4) "Determinable elements" means elements that are derived
42	42	from processes or methods that are guaranteed at issue and not
43	43	subject to company discretion, but where the values or amounts
44	44	cannot be determined until some point after issue. These elements
45	45	include the premiums, credited interest rates (including any
46	46	bonus), benefits, values, non-interest based credits, charges or
47	47	elements of formulas used to determine any of these. These elements
48	48	may be described as guaranteed but not determined at issue. An
49	49	element is considered determinable if it was calculated from
50	50	underlying determinable elements only, or from both determinable
51	51	and guaranteed elements.
52	52	(5) "Funding agreement" means an agreement for an insurer to
53	53	accept and accumulate funds and to make one or more payments at
54	54	future dates in amounts that are not based on mortality or morbidity
55	55	contingencies.
56	56	(6) "Generic name" means a short title descriptive of the
57	57	annuity contract being applied for or illustrated such as "single
58	58	premium deferred annuity."
59	59	(7) "Guaranteed elements" means the premiums, credited
60	60	interest rates (including any bonus), benefits, values,
61	61	non-interest based credits, charges or elements of formulas used to
62	62	determine any of these, that are guaranteed and determined at
63	63	issue. An element is considered guaranteed if all of the underlying
64	64	elements that go into its calculation are guaranteed.
65	65	(8) "Non-guaranteed elements" means the premiums, credited
66	66	interest rates (including any bonus), benefits, values,
67	67	non-interest based credits, charges or elements of formulas used to
68	68	determine any of these, that are subject to company discretion and
69	69	are not guaranteed at issue. An element is considered
70	70	non-guaranteed if any of the underlying non-guaranteed elements are
71	71	used in its calculation.
72	72	(9) "Structured settlement annuity" means a "qualified
73	73	funding asset" as defined in Section 130(d) of the Internal Revenue
74	74	Code or an annuity that would be a qualified funding asset under
75	75	Section 130(d) but for the fact that it is not owned by an assignee
76	76	under a qualified assignment.
77	77	Section 1116.003. Applicability and Exemptions. (a) This
78	78	chapter applies to all group and individual annuity contracts and
79	79	certificates except:
80	80	(1) Registered or non-registered variable annuities
81	81	or other registered products;
82	82	(2) Immediate and deferred annuities that contain no
83	83	non-guaranteed elements;
84	84	(3) Except as provided in Subsection (b) of this
85	85	section, annuities used to fund:
86	86	(i) An employee pension plan which is covered by
87	87	the Employee Retirement Income Security Act (ERISA);
88	88	(ii) A plan described by Sections 401(a), 401(k)
89	89	or 403(b) of the Internal Revenue Code, where the plan, for purposes
90	90	of ERISA, is established or maintained by an employer;
91	91	(iii) A governmental or church plan defined in
92	92	Section 414 or a deferred compensation plan of a state or local
93	93	government or a tax exempt organization under Section 457 of the
94	94	Internal Revenue Code; or
95	95	(iv) A nonqualified deferred compensation
96	96	arrangement established or maintained by an employer or plan
97	97	sponsor.
98	98	(4) Structured settlement annuities;
99	99	(5) Charitable gift annuities;
100	100	(6) Funding agreements; and
101	101	(7) An annuity contract used to fund a contract for
102	102	prepaid funeral benefits, as defined by Chapter 154, Finance Code.
103	103	(b) Notwithstanding Subsection (a)(3) of this section, this
104	104	chapter shall apply to annuities used to fund a plan or arrangement
105	105	that is funded solely by contributions an employee elects to make
106	106	whether on a pre-tax or after-tax basis, and where the insurance
107	107	company has been notified that plan participants may choose from
108	108	among two (2) or more fixed annuity providers and there is a direct
109	109	solicitation of an individual employee by a producer for the
110	110	purchase of an annuity contract. As used in this subsection, direct
111	111	solicitation shall not include any meeting held by a producer
112	112	solely for the purpose of educating or enrolling employees in the
113	113	plan or arrangement.
114	114	SUBCHAPTER B. DISCLOSURES AND DISCLOSURE STANDARDS
115	115	Sec. 1116.051. Disclosure Document and Buyer's Guide. (a)
116	116	Where the application for an annuity contract is taken in a
117	117	face-to-face meeting, the applicant shall, at or before the time of
118	118	application, be given both a disclosure document and the applicable
119	119	Buyer's Guide for either a Fixed Deferred annuity or Equity Indexed
120	120	annuity based on the application for annuity contract.
121	121	(b) Where the application for an annuity contract is taken
122	122	by means other than in a face-to-face meeting, the applicant shall
123	123	be sent both the disclosure document and the applicable Buyer's
124	124	Guide no later than five (5) business days after the completed
125	125	application is received by the insurer.
126	126	(c) With respect to an application received as a result of a
127	127	direct solicitation through the mail:
128	128	(1) Providing a Buyer's Guide in a mailing inviting
129	129	prospective applicants to apply for an annuity contract shall be
130	130	deemed to satisfy the requirement that the applicable Buyer's Guide
131	131	be provided no later than five (5) business days after receipt of
132	132	the application.
133	133	(2) Providing a disclosure document in a mailing
134	134	inviting a prospective applicant to apply for an annuity contract
135	135	shall be deemed to satisfy the requirement that the disclosure
136	136	document be provided no later than five (5) business days after
137	137	receipt of the application.
138	138	(d) With respect to an application received via the
139	139	Internet:
140	140	(1) Taking reasonable steps to make the applicable
141	141	Buyer's Guide available for viewing and printing on the insurer's
142	142	website shall be deemed to satisfy the requirement that the Buyer's
143	143	Guide be provided no later than five (5) business days of receipt of
144	144	the application.
145	145	(2) Taking reasonable steps to make the disclosure
146	146	document available for viewing and printing on the insurer's
147	147	website shall be deemed to satisfy the requirement that the
148	148	disclosure document be provided no later than five (5) business
149	149	days after receipt of the application.
150	150	(e) A solicitation for an annuity contract provided in other
151	151	than a face-to-face meeting shall include a statement that the
152	152	proposed applicant may contact the Texas Insurance Department for a
153	153	free annuity Buyer's Guide applicable to the type of annuity
154	154	application. In lieu of the foregoing statement, an insurer may
155	155	include a statement that the prospective applicant may contact the
156	156	insurer for a free annuity Buyer's Guide.
157	157	(f) Where the Buyer's Guide and disclosure document are not
158	158	provided at or before the time of application, a free look period of
159	159	no less than fifteen (15) days shall be provided for the applicant
160	160	to return the annuity contract without penalty. This free look
161	161	shall run concurrently with any other free look provided under this
162	162	Code or the laws of this state.
163	163	Sec. 1116.052. Disclosure Document Standards. At a
164	164	minimum, the following information shall be included in the
165	165	disclosure document required to be provided under this chapter:
166	166	(a) The generic name of the contract, the company product
167	167	name, if different, and form number, and the fact that it is an
168	168	annuity;
169	169	(b) The insurer's name and address;
170	170	(c) A description of the contract and its benefits,
171	171	emphasizing its long-term nature, including examples where
172	172	appropriate:
173	173	(1) The guaranteed, non-guaranteed and determinable
174	174	elements of the contract, and their limitation, if any, and an
175	175	explanation of how they operate;
176	176	(2) An explanation of the initial crediting rate,
177	177	specifying any bonus or introductory portion, the duration of the
178	178	rate and the fact that rates may change from time to time and are not
179	179	guaranteed;
180	180	(3) Periodic income options both on a guaranteed and
181	181	non-guaranteed basis;
182	182	(4) Any value reductions caused by withdrawals from or
183	183	surrender of the contract;
184	184	(5) How values in the contract can be accessed;
185	185	(6) The death benefit, if available and how it will be
186	186	calculated;
187	187	(7) A summary of the federal tax status of the contract
188	188	and any penalties applicable on withdrawal of values from the
189	189	contract; and
190	190	(8) Impact of any rider, such as a long-term care
191	191	rider.
192	192	(c) Specific dollar amount or percentage charges and fees
193	193	shall be listed with an explanation of how they apply.
194	194	(d) Information about the current guaranteed rate for new
195	195	contracts that contains a clear notice that the rate is subject to
196	196	change.
197	197	(e) Insurers shall define terms used in the disclosure
198	198	statement in language that facilitates the understanding by a
199	199	typical person within the segment of the public to which the
200	200	disclosure statement is directed.
201	201	Sec. 1116.053. Report to Contract Owners. For annuities in
202	202	the payout period with changes in non-guaranteed elements and for
203	203	the accumulation period of a deferred annuity, the insurer shall
204	204	provide each contract owner with a report, at least annually, on the
205	205	status of the contract that contains at least the following
206	206	information:
207	207	(1) The beginning and end date of the current report period;
208	208	(2) The accumulation and cash surrender value, if any, at
209	209	the end of the previous report period and at the end of the current
210	210	report period;
211	211	(3) The total amounts, if any, that have been credited,
212	212	charged to the contract value or paid during the current report
213	213	period; and
214	214	(4) The amount of outstanding loans, if any, as of the end of
215	215	the current report period.
216	216	Sec. 1116.054. Rules. The Commissioner shall adopt by rule
217	217	Buyer's Guides for fixed, deferred and equity indexed annuities to
218	218	accomplish the purpose of this Chapter. The Buyer's Guide adopted
219	219	by the Commissioner shall be the most recent Buyer's Guide for Fixed
220	220	Deferred Annuities and Buyer's Guide for Equity Indexed Annuities
221	221	adopted by the National Association of Insurance Commissioners.
222	222	SUBCHAPTER C. ENFORCEMENT
223	223	Sec. 1116.101. Sanctions. (a) The commissioner may impose
224	224	sanctions as provided by Chapter 82 for a violation of this Chapter.
225	225	(b) The commissioner may reduce or eliminate a sanction for
226	226	a violation of this chapter otherwise applicable if corrective
227	227	action for the consumer was taken promptly after a violation was
228	228	discovered.
229	229	Sec. 1116.102. Severability. If any provision of this
230	230	chapter or its application to any person or circumstance is for any
231	231	reason held to be invalid by any court of law, the remainder of the
232	232	regulation and its application to other persons or circumstances
233	233	shall not be affected.
234	234	SECTION 2. Effective Date. This legislation shall become
235	235	effective on January 1, 2010 and shall apply to policies,
236	236	applications and contracts issued or delivered on or after the
237	237	effective date.