Section 2534.28 - Modified Guaranteed Annuity Contract Requirements(a) Mandatory Contract Benefit and Design Requirements.(1) Any modified guaranteed annuity contract delivered or issued in this state shall contain a statement of the essential features of the procedures to be followed by the insurance company in determining the dollar amount of nonforfeiture benefits.(2) No modified guaranteed annuity contract calling for the payment of periodic stipulated payments shall be delivered or issued for delivery in this state unless it contains in substance the following provisions: (A) A provision that there shall be a grace period of thirty (30) days or of one month during which the contract shall remain in force and, within which any payment due to the insurer other than the first may be made. The contract may include a statement of the basis for determining the date as of which any such payment received during the grace period shall be applied to produce the values under the contract;(B) A provision that, at any time within one year from the date of default, the contract may be reinstated upon payment to the insurer of such overdue payments as required by contract, and of all indebtedness to the insurer on the contract, including interest. Reinstatement may not occur if the cash value has been paid. The contract may include a statement of the basis for determining the date as of which the amount to cover such overdue payments and indebtedness shall be applied to produce the values under the contract;(C) A provision that, except and to the extent set out in contracts, the portion of the assets of any separate account which equal the reserves and other contract liabilities of the account shall not be chargeable with liabilities arising out of any other business of the company;(3) The market-value adjustment formula, used in determining nonforfeiture benefits, must be stated in the contract and must be applicable for both upward and downward adjustments. When a contract is filed, it must be accompanied by an actuarial statement indicating the basis for the market-value adjustment formula and that the formula provides reasonable equity to both the contract holder and the insurance company.(b) Nonforfeiture Benefits. (1) This section shall not apply to any of the following: (B) Group annuity contracts purchased in connection with one or more retirement plans or deferred compensation plans established or maintained by or for one or more employers (including partnerships or sole proprietorships), employee organizations, or any combinations thereof, other than plans providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code;(C) Premium deposit fund;(F) Deferred annuity contract after annuity payments have commenced;(G) Reversionary annuity; or(H) Any contract which is to be delivered outside this state by an agent or other representative of the company issuing the contract.(2) No modified guaranteed annuity contract shall be delivered or issued for delivery in this state unless it contains in substance the following provisions: (A) When premium payments cease under a contract, the insurer will grant a paid-up annuity benefit on a plan described in the contract that complies with Paragraph (5) below. The provision will include a statement of the mortality table, if any, and guaranteed or assumed interest rates used in calculating annuity payments.(B) If a contract provides for a lump sum settlement at maturity, or at any other time, upon surrender of the contract at or prior to the commencement of any annuity payments, the insurer will pay, in lieu of any paid-up annuity benefit, a cash surrender benefit as described in the contract that complies with Paragraph (8) below. The company may reserve the right to defer the payment of the cash surrender benefit for a period not to exceed six (6) months after demand thereof with surrender of the contract after making written request and receiving written approval of the commissioner. The request shall address the necessity and equitability to all policyholders of the deferral.(3) The minimum values, as specified in this section, of any paid-up annuity, cash surrender or death benefits available under a modified guaranteed annuity contract shall be based upon nonforfeiture amounts meeting the requirements of this paragraph. In addition, pursuant to Insurance Code section 10506.3(a), the provisions of Insurance Code Article 3B (commencing with section 10168) of Chapter 1 of Part 2 of Division 2 with regard to nonforfeiture values shall apply to the Unadjusted Minimum Nonforfeiture Amount, as an absolute minimum. The Unadjusted Minimum Nonforfeiture Amount on any date prior to the annuity commencement date shall be an amount equal to the net considerations (as specified in Paragraph (6) below) increased by the interest credits as defined in Section 2534.21 of these regulations allocated to the net considerations, which amount shall be reduced to reflect the effect of Subparagraphs (A), (B), (C), and (D) below: (A) Any prior withdrawals from or partial surrenders of the contract increased by the interest credits defined in Section 2534.21;(B) An annual contract charge of $50, increased by the interest credits defined in Section 2534.21;(C) Any premium tax paid by the company for the contract, increased by the interest credits defined in Section 2534.21. The premium tax credit is only permitted if the tax is actually paid by the company. If the tax is paid and subsequently credited back to the company, such as upon early termination of the contract, the tax credit may not be taken; and(D) The amount of any indebtedness to the company on the contract, including interest due and accrued.(4) Guaranteed interest credits in each year for any period of time for which interest credits are guaranteed shall be reasonably related to the average guaranteed interest credits over that period of time.(5) The Minimum Nonforfeiture Amount shall be the Unadjusted Minimum Nonforfeiture Amount adjusted by the market-value adjustment formula contained in the contract.(6) The net considerations for a given contract year used to define the minimum nonforfeiture amount in subsection 2534.28(b)(3) shall be an amount equal to eighty-seven and one-half percent (87.5%) of the gross considerations credited to the contract during that contract year.(7) Any paid-up annuity benefit available under a modified guaranteed annuity contract shall be such that its present value on the annuity commencement date is at least equal to the Minimum Nonforfeiture Amount on that date. Such present value shall be computed using the mortality table, if any, and the guaranteed or assumed interest rates used in calculating the annuity payments.(8) For modified guaranteed annuity contracts which provide cash surrender benefits, the cash surrender benefit at any time prior to the annuity commencement date shall not be less than the Minimum Nonforfeiture Amount next computed after the request for surrender is received by the insurer. The death benefit under such contracts shall be at least equal to the cash surrender benefit.(9) Any modified guaranteed annuity contract which does not provide cash surrender benefits, or does not provide death benefits at least equal to the Minimum Nonforfeiture Amount, prior to the annuity commencement date shall include a statement in a prominent place in the contract that such benefits are not provided.(10) Notwithstanding the requirements of this section, a modified guaranteed annuity contract may provide under the situations specified in Subparagraphs (A) or (B) below that the insurer, at its option, may cancel the annuity and pay the contract holder the larger of the Unadjusted Minimum Nonforfeiture Amount and the Minimum Nonforfeiture Amount, and by such payment be released of any further obligation under the contract: (A) If, at the time the annuity becomes payable, the larger of the Unadjusted Minimum Nonforfeiture Amount and the Minimum Nonforfeiture Amount is less than $2,000, or would provide an income the initial amount of which is less than $20 per month; or(B) If, prior to the time the annuity becomes payable under a periodic payment contract no considerations have been received under the contract for a period of two (2) full years and both: (i) The total considerations paid prior to such period, reduced to reflect any partial withdrawals from or partial surrenders of the contract, and(ii) The larger of the Unadjusted Minimum Nonforfeiture Amount and the Minimum Nonforfeiture Amount is less than $2,000.(11) For any modified guaranteed annuity contract which provides, within the same contract by rider or supplemental contract provision, both annuity benefits and life insurance benefits that are in excess of the greater of cash surrender benefits or a return of the gross considerations with interest, the minimum nonforfeiture benefits shall be equal to the sum of the minimum nonforfeiture benefits for the annuity portion and the minimum nonforfeiture benefits, if any, for the life insurance portion computed as if each portion were a separate contract. Notwithstanding the provisions of Subparagraph 2534.28(b) additional benefits are payable under the following conditions: (A) In the event of total and permanent disability,(B) As reversionary annuity or deferred reversionary annuity benefits, or(C) As other policy benefits additional to life insurance, endowment, and annuity benefits, and considerations for all such additional benefits shall be disregarded in ascertaining the minimum nonforfeiture amounts, paid-up annuity, cash surrender and death benefits that may be required by this section. The inclusion of such additional benefits shall not be required in any paid-up benefits, unless the additional benefits separately would require Minimum Nonforfeiture Amounts, paid-up annuity, cash surrender and death benefits.(c) The Application. The application for a modified guaranteed annuity shall prominently set forth language substantially stating that amounts payable under the contract are subject to a market-value adjustment prior to a date or dates specified in the contract. The statement shall be placed immediately above the signature line.Cal. Code Regs. Tit. 10, § 2534.28
1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).
2. Amendment of section and Note filed 11-9-2006; operative 11-9-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 45). Note: Authority cited: Sections 10506(h) and 10506.3(a), Insurance Code. Reference: Sections 10506(h) and 10506.3(a), Insurance Code.
1. New section filed 2-6-92; operative 3-9-92 (Register 92, No. 13).
2. Amendment of section and Note filed 11-9-2006; operative 11-9-2006 pursuant to Government Code section 11343.4 (Register 2006, No. 45).