By: Eiland H.B. No. 1293
A BILL TO BE ENTITLED
AN ACT
relating to certain disclosure standards for certain annuity
contracts
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. The Insurance Code is amended by adding a new
Chapter 1116 to read as follow:
CHAPTER 1116. DISCLOSURE REQUIREMENTS FOR CERTAIN ANNUITY
TRANSACTIONS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1116.001. Purpose. The purpose of this chapter is to
provide standards for the disclosure of certain minimum information
about annuity contracts to protect consumers and foster consumer
education. This chapter specifies the minimum information which
must be disclosed and the method for disclosing it in connection
with the sale of annuity contracts. The goal of this chapter is to
ensure that purchasers of annuity contracts understand certain
basic features of certain annuity contracts.
Sec. 1116.002. Definitions. In this chapter:
(1) "Buyer's Guide" means the Buyer's Guide for Fixed
Deferred Annuities or the Buyer's Guide for Equity Indexed
Annuities as adopted by the National Association of Insurance
Commissioners and adopted by the Commissioner by rule as provided
in this Chapter.
(2) "Charitable gift annuity" means a transfer of cash or
other property by a donor to a charitable organization in return for
an annuity payable over one or two lives, under which the actuarial
value of the annuity is less than the value of the cash or other
property transferred and the difference in value constitutes a
charitable deduction for federal tax purposes, but does not include
a charitable remainder trust or a charitable lead trust or other
similar arrangement where the charitable organization does not
issue an annuity and incur a financial obligation to guarantee
annuity payments.
(3) "Contract owner" means the owner named in the annuity
contract or certificate holder in the case of a group annuity
contract.
(4) "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 (including any
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 it was calculated from
underlying determinable elements only, or from both determinable
and guaranteed elements.
(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 or illustrated such as "single
premium deferred annuity."
(7) "Guaranteed elements" means the premiums, credited
interest rates (including any 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 (including any 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 non-guaranteed elements are
used in its calculation.
(9) "Structured settlement annuity" means a "qualified
funding asset" as defined in Section 130(d) of the Internal Revenue
Code or an annuity that would be a qualified funding asset under
Section 130(d) but for the fact that it is not owned by an assignee
under a qualified assignment.
Section 1116.003. Applicability and Exemptions. (a) This
chapter applies to all group and individual annuity contracts and
certificates except:
(1) Registered or non-registered variable annuities
or other registered products;
(2) Immediate and deferred annuities that contain no
non-guaranteed elements;
(3) Except as provided in Subsection (b) of this
section, annuities used to fund:
(i) An employee pension plan which is covered by
the Employee Retirement Income Security Act (ERISA);
(ii) A plan described by Sections 401(a), 401(k)
or 403(b) of the Internal Revenue Code, where the plan, for purposes
of ERISA, is established or maintained by an employer;
(iii) A governmental or church plan defined in
Section 414 or a deferred compensation plan of a state or local
government or a tax exempt organization under Section 457 of the
Internal Revenue Code; or
(iv) A nonqualified deferred compensation
arrangement established or maintained by an employer or plan
sponsor.
(4) Structured settlement annuities;
(5) Charitable gift annuities;
(6) Funding agreements; and
(7) An annuity contract used to fund a contract for
prepaid funeral benefits, as defined by Chapter 154, Finance Code.
(b) Notwithstanding Subsection (a)(3) of this section, this
chapter 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 where the insurance
company has been notified that plan participants may choose from
among two (2) 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 shall not include any meeting held by a producer
solely for the purpose of educating or enrolling employees in the
plan or arrangement.
SUBCHAPTER B. DISCLOSURES AND DISCLOSURE STANDARDS
Sec. 1116.051. Disclosure Document and Buyer's Guide. (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 a disclosure document and the applicable
Buyer's Guide for either a Fixed Deferred annuity or Equity Indexed
annuity based on the application for annuity contract.
(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 applicable Buyer's
Guide no later than five (5) business days after the completed
application is received by the insurer.
(c) With respect to an application received as a result of a
direct solicitation through the mail:
(1) 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 applicable Buyer's Guide
be provided no later than five (5) business days after receipt of
the application.
(2) 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 (5) business days after
receipt of the application.
(d) With respect to an application received via the
Internet:
(1) Taking reasonable steps to make the applicable
Buyer's Guide available for viewing and printing on the insurer's
website shall be deemed to satisfy the requirement that the Buyer's
Guide be provided no later than five (5) business days of receipt of
the application.
(2) 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 (5) business
days after receipt of the application.
(e) A solicitation for an annuity contract provided in other
than a face-to-face meeting shall include a statement that the
proposed applicant may contact the Texas Insurance Department for a
free annuity Buyer's Guide applicable to the type of annuity
application. In lieu of the foregoing statement, an insurer may
include a statement that the prospective applicant may contact the
insurer for a free annuity Buyer's Guide.
(f) Where the Buyer's Guide and disclosure document are not
provided at or before the time of application, a free look period of
no less than fifteen (15) days shall be provided for the applicant
to return the annuity contract without penalty. This free look
shall run concurrently with any other free look provided under this
Code or the laws of this state.
Sec. 1116.052. Disclosure Document Standards. At a
minimum, the following information shall be included in the
disclosure document required to be provided under this chapter:
(a) The generic name of the contract, the company product
name, if different, and 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:
(1) The guaranteed, non-guaranteed and determinable
elements of the contract, and their limitation, if any, and an
explanation of how they operate;
(2) 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;
(3) Periodic income options both on a guaranteed and
non-guaranteed basis;
(4) Any value reductions caused by withdrawals from or
surrender of the contract;
(5) How values in the contract can be accessed;
(6) The death benefit, if available and how it will be
calculated;
(7) A summary of the federal tax status of the contract
and any penalties applicable on withdrawal of values from the
contract; and
(8) Impact of any rider, such as a long-term care
rider.
(c) Specific dollar amount or percentage charges and fees
shall be listed with an explanation of how they apply.
(d) Information about the current guaranteed rate for new
contracts that contains a clear notice that the rate is subject to
change.
(e) Insurers 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.
Sec. 1116.053. Report to Contract Owners. For annuities in
the payout period with changes in non-guaranteed 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 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.
Sec. 1116.054. Rules. The Commissioner shall adopt by rule
Buyer's Guides for fixed, deferred and equity indexed annuities to
accomplish the purpose of this Chapter. The Buyer's Guide adopted
by the Commissioner shall be the most recent Buyer's Guide for Fixed
Deferred Annuities and Buyer's Guide for Equity Indexed Annuities
adopted by the National Association of Insurance Commissioners.
SUBCHAPTER C. ENFORCEMENT
Sec. 1116.101. Sanctions. (a) The commissioner may impose
sanctions as provided by Chapter 82 for a violation of this Chapter.
(b) The commissioner may reduce or eliminate a sanction for
a violation of this chapter otherwise applicable if corrective
action for the consumer was taken promptly after a violation was
discovered.
Sec. 1116.102. Severability. If any provision of this
chapter or its application to any person or circumstance is for any
reason held to be invalid by any court of law, the remainder of the
regulation and its application to other persons or circumstances
shall not be affected.
SECTION 2. Effective Date. This legislation shall become
effective on January 1, 2010 and shall apply to policies,
applications and contracts issued or delivered on or after the
effective date.