CHAPTER 1107. STANDARD NONFORFEITURE LAW FOR CERTAIN ANNUITIES - Texas Statutes

INSURANCE CODE

TITLE 7. LIFE INSURANCE AND ANNUITIES

SUBTITLE A. LIFE INSURANCE IN GENERAL

CHAPTER 1107. STANDARD NONFORFEITURE LAW FOR CERTAIN ANNUITIES

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 1107.001. APPLICABILITY OF CHAPTER. (a) This chapter

applies to an annuity contract issued on or after August 29,

1979.

(b) This chapter also applies to an annuity contract issued by a

company after a date specified in a written notice:

(1) that was filed with the State Board of Insurance after

August 29, 1977, but before August 29, 1979; and

(2) under which the company filing the notice elected to comply

before August 29, 1979, with the law codified by this chapter.

(c) Companies shall issue, and the department shall review,

annuity contracts as follows:

(1) under Sections 1107.051-1107.054 until August 31, 2005; or

(2) under Sections 1107.055-1107.057 after September 1, 2003.

(d) Companies shall not issue annuity contracts under Sections

1107.051-1107.054 after August 31, 2005.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.002. EXEMPTIONS. (a) This chapter does not apply to:

(1) a reinsurance contract;

(2) a group annuity contract that is purchased under a

retirement plan or plan of deferred compensation established or

maintained by an employer, including a partnership or sole

proprietorship, by an employee organization, or by both, other

than a plan that provides individual retirement accounts or

individual retirement annuities under Section 408, Internal

Revenue Code of 1986, as amended;

(3) a premium deposit fund;

(4) a variable annuity contract;

(5) an investment annuity contract;

(6) an immediate annuity contract;

(7) a deferred annuity contract under which annuity payments

have begun; or

(8) a reversionary annuity contract.

(b) This chapter does not apply to a contract delivered outside

this state through an agent or other representative of the

company that issues the contract.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.003. REQUIRED NONFORFEITURE PROVISIONS. (a) An

annuity contract delivered or issued for delivery in this state

must contain in substance the provisions prescribed by this

section or corresponding provisions that, in the opinion of the

department, are at least as favorable to the contract holder when

payment of considerations under the contract ceases.

(b) The annuity contract must provide that when payment of

considerations under a contract ceases, the company will grant a

paid-up annuity benefit on a plan stipulated in the contract that

has a value that complies with this chapter.

(c) An annuity contract that provides for a lump-sum settlement

at maturity or at any other time must provide that on surrender

of the contract on or before the time annuity payments begin, the

company that issues the contract shall pay a cash surrender

benefit in an amount that complies with this chapter in lieu of a

paid-up annuity benefit. A company may reserve the right to defer

payment of any cash surrender benefit for a period not to exceed

six months after demand for payment of the benefit is made with

surrender of the contract.

(d) An annuity contract must contain:

(1) a statement of the mortality table, if any, and interest

rates to be used to compute any minimum paid-up annuity, cash

surrender, or death benefits that are guaranteed under the

contract, together with information that is sufficient to

determine the amounts of the benefits;

(2) a statement that any paid-up annuity, cash surrender, or

death benefits available under the contract are not less than the

minimum benefits required by this state; and

(3) an explanation of the manner in which a paid-up annuity,

cash surrender, or death benefit is altered by the existence of

any additional amounts credited to the contract by the company

that issues the contract, any indebtedness to the company on the

contract, or any prior withdrawals from or partial surrenders of

the contract.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.004. OPTIONAL TERMINATION PROVISION. (a)

Notwithstanding the requirements of Section 1107.003, an annuity

contract may provide that the company has the option to terminate

the contract by making a cash payment of the then present value

of that portion of the paid-up annuity benefit if:

(1) no considerations are received under the contract for two

years; and

(2) at maturity, payments on the portion of the paid-up annuity

benefit on the plan stipulated in the contract attributable to

considerations paid before that period would be less than $20

each month.

(b) If an annuity contract contains a provision permitted under

Subsection (a):

(1) the present value of a portion of a paid-up annuity benefit

paid under that provision must be computed on the basis of the

mortality table, if any, and interest rates specified in the

contract for determining the paid-up annuity benefit; and

(2) a payment made under that provision relieves the company of

any further obligation under the contract.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.005. CONTACT DISCLOSURE THAT CERTAIN BENEFITS NOT

PROVIDED. An annuity contract that does not provide a cash

surrender benefit or that does not provide a death benefit that

is at least equal to the minimum nonforfeiture amount for the

contract under Subchapter B before annuity payments begin must

include a statement in a prominent place in the contract that

those benefits are not provided.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.006. MATURITY DATE. In determining the value of

benefits under Sections 1107.102, 1107.103, and 1107.104, the

maturity date is the latest date on which an election is

permitted by the contract, but not later than the later of:

(1) the next anniversary of the annuity contract that follows

the annuitant's 70th birthday; or

(2) the 10th anniversary of the contract.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

408, Sec. 1, eff. September 1, 2009.

SUBCHAPTER B. COMPUTATION OF MINIMUM NONFORFEITURE AMOUNT

Sec. 1107.051. MINIMUM NONFORFEITURE AMOUNT. The minimum value

under Subchapter C of a paid-up annuity, cash surrender, or death

benefit shall be computed on the basis of the minimum

nonforfeiture amount prescribed by this subchapter.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.052. CONTRACT WITH FLEXIBLE CONSIDERATIONS. (a) This

section applies only to an annuity contract that provides for the

payment of flexible considerations.

(b) The minimum nonforfeiture amount on or before annuity

payments begin is an amount equal to the accumulation of the

prescribed percentages of the amount of net considerations paid

to the date of computation, which are accumulated at an interest

rate of three percent per year, plus any additional amount

credited to the contract by the company, less the amount of:

(1) any withdrawal from or partial surrender of the contract

made before the minimum nonforfeiture amount is computed,

accumulated at an interest rate of three percent per year; and

(2) any indebtedness to the company on the contract, including

any accrued interest due on the indebtedness.

(c) For the purposes of this section, the amount of net

consideration for a contract year may not be less than $0 and is

computed by subtracting from the amount of gross considerations

credited to the contract during that contract year:

(1) an annual contract charge of $30; and

(2) a collection charge of $1.25 for each consideration credited

to the contract during that year.

(d) Except as provided by Subsection (e), the percentage of the

amount of net consideration to be used in computing a minimum

nonforfeiture amount under Subsection (b) is:

(1) 65 percent for the first contract year; and

(2) 87.5 percent for each subsequent contract year.

(e) For a renewal contract year, the percentage of the amount of

net consideration to be used to compute a minimum nonforfeiture

amount under Subsection (b) is 65 percent of the portion of the

total amount of net consideration that exceeds by not more than

two times the sum of those portions of the amount of net

consideration in all preceding contract years for which the

percentage was 65 percent.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.053. CONTRACT WITH FIXED, SCHEDULED CONSIDERATIONS.

(a) For an annuity contract that provides for the payment of

fixed, scheduled considerations, the minimum nonforfeiture amount

is computed in the same manner as the minimum nonforfeiture

amount for an annuity contract with flexible considerations that

are paid annually, except that:

(1) the amount of net consideration for a contract year is

computed using an annual contract charge equal to the lesser of:

(A) $30; or

(B) 10 percent of the amount of the gross annual considerations

paid on the contract; and

(2) the percentage of the net consideration amount for the first

contract year to be used to compute the minimum nonforfeiture

amount is 65 percent of the amount of net consideration for the

first contract year plus 22.5 percent of the amount by which the

amount of net consideration for the first contract year exceeds

the lesser of:

(A) the amount of net consideration for the second contract

year; or

(B) the amount of net consideration for the third contract year.

(b) The computation made under Subsection (a) must assume that

the considerations are paid annually in advance.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.054. CONTRACT WITH SINGLE CONSIDERATION. For an

annuity contract that provides for the payment of a single

consideration, the minimum nonforfeiture amount is computed in

the same manner as the minimum nonforfeiture amount for a

contract with flexible considerations, except that:

(1) the net consideration amount to be used to compute the

minimum nonforfeiture amount is the amount of the gross

considerations paid under the contract less a contract charge of

$75; and

(2) the percentage of the net consideration amount to be used to

compute the minimum nonforfeiture amount is 90 percent.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.055. INTEREST RATE. The interest rate used in

determining minimum nonforfeiture amounts shall be an annual rate

of interest determined as the lesser of three percent per annum

and the following, which must be specified in the contract if the

interest rate will be redetermined:

(1) the five-year Constant Maturity Treasury Rate reported by

the Federal Reserve as of a date, or average over a period,

rounded to the nearest 1/20th of one percent, specified in the

contract no longer than 15 months prior to the contract issue

date or redetermination date under Subdivision (4);

(2) reduced by 125 basis points;

(3) where the resulting interest rate is not less than one

percent; and

(4) the interest rate shall apply for an initial period and may

be redetermined for additional periods. The redetermination date,

basis, and period, if any, shall be stated in the contract. As

used in this section, basis is the date, or average over a

specified period, which produces the five-year Constant Maturity

Treasury Rate to be used at each redetermination date.

Added by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June 20,

2003.

Sec. 1107.056. ADDITIONAL INTEREST RATE ADJUSTMENTS. The

commissioner may adopt rules to provide for further adjustments

to Section 1107.055 for annuity contracts that provide

substantive participation in an equity index benefit or other

benefits as appropriate.

Added by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June 20,

2003.

Sec. 1107.057. MINIMUM NONFORFEITURE AMOUNT. (a) The minimum

values as specified in Sections 1107.006 and 1107.101-1107.105 of

any paid-up annuity, cash surrender, or death benefits available

under an annuity contract shall be based upon minimum

nonforfeiture amounts as defined in this section.

(b) The minimum nonforfeiture amount at any time at or prior to

the commencement of any annuity payments shall be equal to an

accumulation up to such time at rates of interest as indicated in

this subchapter of the net considerations as defined by

Subsection (c) paid prior to such time, decreased by the sum of

Subdivisions (1) through (4):

(1) any withdrawal from or partial surrender of the contract

made before the minimum nonforfeiture amount is computed,

accumulated at an interest rate as indicated in this subchapter;

(2) an annual contract charge of $50, accumulated at rates of

interest as indicated in this subchapter;

(3) premium tax paid, if any, by the company, and not

subsequently credited back to the company, for the contract,

accumulated at rates of interest as indicated in this subchapter;

and

(4) any indebtedness to the company on the contract, including

any accrued interest due on the indebtedness.

(c) For the purposes of this section, the amount of net

consideration for a contract year shall be an amount equal to

87.5 percent of the gross considerations credited to the contract

during that contract year.

Added by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June 20,

2003.

SUBCHAPTER C. VALUE OF NONFORFEITURE BENEFITS

Sec. 1107.101. PRESENT VALUE OF NONFORFEITURE BENEFITS. (a)

The present value of any paid-up annuity benefit available under

an annuity contract on the date annuity payments are to begin may

not be less than the minimum nonforfeiture amount for that

contract on that date as computed under Subchapter B.

(b) The present value of the paid-up annuity benefit shall be

computed using the mortality table, if any, and the interest

rates specified in the contract for computing the minimum paid-up

annuity benefit guaranteed by the contract.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.102. COMPUTATION OF PAID-UP ANNUITY BENEFIT UNDER

CERTAIN CONTRACTS. (a) This section applies only to an annuity

contract that does not provide a cash surrender benefit.

(b) Subject to Subsection (e), the present value of a paid-up

annuity benefit available as a nonforfeiture option before the

maturity date may not be less than the present value of the

portion of the maturity value of the paid-up annuity benefit

provided under the contract that arises from considerations paid

on the contract before the date the contract is surrendered in

exchange for or is changed to a deferred paid-up annuity.

(c) The present value of a paid-up annuity benefit under

Subsection (b) shall be:

(1) computed for the period before the maturity date on the

basis of the interest rate specified in the contract for

accumulating the net considerations paid on the contract to

determine the maturity value; and

(2) increased by any additional amount credited by the company

to the contract.

(d) Subject to Subsection (e), for an annuity contract that does

not provide a death benefit before annuity payments begin, the

present value of a paid-up annuity benefit available as a

nonforfeiture option shall be computed using the interest rate

and the mortality table specified in the contract for determining

the maturity value of the paid-up annuity benefit.

(e) The present value of a paid-up annuity benefit may not be

less than the minimum nonforfeiture amount on the date of

surrender or change.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.103. COMPUTATION OF CASH SURRENDER BENEFIT. (a)

Subject to Subsection (c), the value of a cash surrender benefit

available under an annuity contract before the maturity date may

not be less than the present value on the date the contract is

surrendered of the portion of the maturity value of the paid-up

annuity benefit that arises from considerations paid under the

contract before that date and that would be provided under the

contract at maturity less an amount reflecting any withdrawals

from or partial surrenders of the contract before that date and

the amount of any indebtedness to the company on the contract,

including accrued interest due on the indebtedness, plus any

additional amount credited by the company to the contract.

(b) The present value used to compute the minimum cash surrender

benefit under Subsection (a) shall be computed using an interest

rate that is not more than one percent higher than the interest

rate specified in the contract for accumulating the net

considerations paid on the contract to determine the maturity

value.

(c) The value of a cash surrender benefit may not be less than

the minimum nonforfeiture amount on the date the contract is

surrendered.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.104. COMPUTATION OF DEATH BENEFIT. The value of a

death benefit available under an annuity contract that provides a

cash surrender benefit may not be less than the value of the cash

surrender benefit.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.105. COMPUTATION OF BENEFITS AVAILABLE AT THE TIME

OTHER THAN CONTRACT ANNIVERSARY. For an annuity contract that

requires payment of fixed, scheduled considerations, the value of

a paid-up annuity, cash surrender, or death benefit that is

available under the contract on a date other than an anniversary

of the contract date shall be computed to allow for the lapse of

time and any scheduled considerations paid after the beginning of

the contract year in which payment of considerations under the

contract ceased.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.106. MINIMUM NONFORFEITURE VALUES UNDER CONTRACT THAT

PROVIDES ANNUITY AND LIFE INSURANCE BENEFITS. For a contract

that provides, by rider or by supplemental provision, both

annuity benefits and life insurance benefits that exceed the

greater of the value of the cash surrender benefit or the amount

with interest of the gross considerations paid on the contract,

the minimum nonforfeiture benefits are equal to the sum of the

minimum nonforfeiture benefits for the annuity portion of the

contract and the minimum nonforfeiture benefits, if any, for the

life insurance portion of the contract, computed as if each

portion were a separate contract.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.107. COMPUTATIONS NOT AFFECTED BY ADDITIONAL BENEFITS.

(a) Notwithstanding any other provision of this subchapter or

Section 1107.006, a computation of a minimum nonforfeiture amount

or of a paid-up annuity, cash surrender, or death benefit under

this chapter may not include:

(1) any additional benefit that is:

(A) payable in the event of total and permanent disability;

(B) payable as a reversionary annuity or deferred reversionary

annuity benefit; or

(C) payable as another policy benefit in addition to life

insurance, endowment, or annuity benefits; or

(2) the considerations paid for the additional benefit.

(b) A paid-up benefit under an annuity contract is not required

to include an additional benefit described by Subsection (a)

unless the additional benefit separately requires:

(1) a minimum nonforfeiture amount; or

(2) a paid-up annuity, cash surrender, or death benefit.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 2, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June

20, 2003.

Sec. 1107.108. RULES. The commissioner may adopt rules to

implement the provisions of this chapter.

Added by Acts 2003, 78th Leg., ch. 869, Sec. 1, eff. June 20,

2003.