AN ACT
RELATING TO INSURANCE; CHANGING THE NONFORFEITURE INTEREST
RATE ON DEFERRED ANNUITIES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
Section 1. Section 59A-20-33 NMSA 1978 (being Laws 1984,
Chapter 127, Section 398) is amended to read:
"59A-20-33. STANDARD NONFORFEITURE LAW–INDIVIDUAL DEFERRED ANNUITIES.--
A. This section shall not apply to any
reinsurance, group annuity purchased under a retirement plan or plan of
deferred compensation established or maintained by an employer, including a
partnership or sole proprietorship or by an employee organization, or by both,
other than a plan providing individual retirement accounts or individual
retirement annuities under Section 408 of the Internal Revenue Code of 1986, as
now or hereafter amended, premium deposit fund, variable annuity, investment
annuity, immediate annuity, any deferred annuity contract after annuity
payments have commenced or reversionary annuity, nor to any contract that shall
be delivered outside this state through an agent or other representative of the
insurer issuing the contract.
B. In the case of contracts issued on or after
the operative date of this section as defined in Subsection L of this section,
no contract of annuity, except as stated in Subsection A of this section, shall
be delivered or issued for delivery in this state unless it contains in
substance the following provisions, or corresponding provisions which in the
opinion of the superintendent are at least as favorable to the contractholder,
upon cessation of payment of considerations under the contract:
(1) that upon cessation of payment of
considerations under a contract or upon the written request of the contract
owner, the insurer shall grant a paid-up annuity benefit on a plan stipulated
in the contract of such value as is specified in Subsections D, E, F, G and I
of this section;
(2) if a contract provided for a lump sum
settlement at maturity, or at any other time, that upon surrender of the
contract at or prior to the commencement of any annuity payments, the insurer
shall pay in lieu of any paid-up annuity benefit a cash surrender benefit of
such amount as is specified in Subsections D, E, G and I of this section. The insurer may reserve the right to defer
the payment of such cash surrender benefit for a period not to exceed six
months after demand therefor with surrender of the contract after making
written request and receiving written approval of the superintendent. The request shall address the necessity and
equatability to all policyholders of the deferral;
(3) a statement of the mortality table, if any,
and interest rates used in calculating any minimum paid-up annuity, cash
surrender or death benefits that are guaranteed under the contract, together
with sufficient information to determine the amounts of such benefits; and
(4) a statement that any paid-up annuity, cash
surrender or death benefits that may be available under the contract are not
less than the minimum benefits required by any statute of the state in which
the contract is delivered and an explanation of the manner in which such
benefits are altered by the existence of any additional amounts credited by the
insurer to the contract, any indebtedness to the insurer on the contract or any
prior withdrawals from or partial surrenders of the contract.
Notwithstanding the
requirements of this section, any deferred annuity contract may provide that if
no considerations have been received under a contract for a period of two full
years and the portion of the paid-up annuity benefit at maturity on the plan
stipulated in the contract arising from prior considerations paid would be less
than twenty dollars ($20.00) monthly, the insurer may at its option terminate
such contract by payment in cash of the then present value of such portion of
the paid-up annuity benefit, calculated on the basis of the mortality table, if
any, and interest rate specified in the contract for determining the paid-up
annuity benefit, and by such payment shall be relieved of any further
obligation under such contract.
C. The minimum values as specified in
Subsections D, E, F, G and I of this section 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.
(1) 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 Paragraph (2)
of Subsection C of this section of the net considerations, as hereinafter
defined, paid prior to such time, decreased by the sum of Subparagraphs (a)
through (d):
(a) any prior withdrawals from or partial
surrenders of the contract accumulated at rates of interest as indicated in
Paragraph (2) of Subsection C of this section;
(b) an annual contract charge of fifty dollars
($50.00), accumulated at rates of interest as indicated in Paragraphs (2) of
Subsection C of this section;
(c) any premium tax paid by the insurer for the
contract, accumulated at rates of interest as indicated in Paragraph (2) of
Subsection C of this section; and
(d) the amount of any indebtedness to the insurer
on the contract, including interest due and accrued.
The net considerations for a
given contract year used to define the minimum nonforfeiture amount shall be an
amount equal to eighty-seven and
one-half percent of the gross considerations credited to the contract during
that contract year.
(2) 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 shall be specified
in the contract if the interest rate will be reset:
(a) 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 one-twentieth percent, specified in the contract no longer than
fifteen months prior to the contract issue date or redetermination date
pursuant to Subparagraph (d) of Paragraph 2 of Section C of this section;
(b) reduced by one hundred twenty-five basis
points;
(c) where the resulting interest rate is not less
than one percent; and
(d) 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.
The basis is the date or average over a specified period that produces
the value of the five-year constant maturity treasury rate to be used at each
redetermination date.
(3) Notwithstanding the provisions of Paragraphs
(1) and (2) of Subsection C of this section, during the period or term that a
contract provides substantive participation in an equity indexed benefit, it
may increase the reduction described in Subparagraph (b) of Paragraph (2) of
Subsection C of this section by up to an additional one hundred basis points to
reflect the value of the equity index benefit.
The present value at the contract issue date, and at each
redetermination date thereafter, of the additional reduction shall not exceed
the market value of the benefit. The
superintendent may require a demonstration that the present value of the reduction
does not exceed the market value of the benefit. Lacking such a demonstration that is
acceptable to the superintendent, the superintendent may disallow or limit the
additional reduction.
(4) The superintendent may adopt rules to
implement the provisions of Paragraph (3) of Subsection C of this section and
to provide for further adjustments to the calculation of minimum nonforfeiture
amounts for contracts that provide substantive participation in an equity index
benefit and for other contracts that the superintendent determines adjustments
are justified.
D. Any paid-up annuity benefit available under a
contract shall be such that its present value on the date annuity payments are
to commence 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 interest rates specified in
the contract for determining the minimum paid-up annuity benefits guaranteed in
the contract.
E. For contracts that provide cash surrender
benefits, such cash surrender benefits available prior to maturity shall not be
less than the present value as of the date of surrender of that portion of the
maturity value of the paid-up annuity benefit that would be provided under the
contract at maturity arising from considerations paid prior to the time of cash
surrender reduced by the amount appropriate to reflect any prior withdrawals
from or partial surrenders of the contract, such present value being calculated
on the basis of an interest rate not more than one percent higher than the
interest rate specified in the contract for accumulating the net considerations
to determine such maturity value, decreased by the amount of any indebtedness
to the insurer on the contract, including interest due and accrued, and
increased by any existing additional amounts credited by the insurer to the
contract. In no event shall any cash
surrender benefit be less than the minimum nonforfeiture amount at that
time. The death benefit under such
contracts shall be at least equal to the cash surrender benefit.
F. For contracts that do not provide cash
surrender benefits, the present value of any paid-up annuity benefit available
as a nonforfeiture option at any time prior to maturity shall not be less than
the present value of that portion of the maturity value of the paid-up annuity
benefit provided under the contract arising from considerations paid prior to
the time the contract is surrendered in exchange for, or changed to, a deferred
paid-up annuity, such present value being calculated for the period prior to
the maturity date on the basis of the interest rate specified in the contract
for accumulating the net considerations to determine such maturity value, and
increased by any existing additional amounts credited by the insurer to the
contract. For contracts that do not
provide any death benefits prior to the commencement of any annuity payments,
such present values shall be calculated on the bases of such interest rate and
the mortality table specified in the contract for determining the maturity
value of the paid-up annuity benefit.
However, in no event shall the present value of a paid-up annuity
benefit be less than the minimum nonforfeiture amount at that time.
G. For the purpose of determining the benefits
calculated under Subsections E and F of this section, in the case of annuity
contracts under which an election may be made to have annuity payments commence
at optional maturity dates, the maturity date shall be deemed to be the latest
date for which election shall be permitted by the contract, but shall not be
deemed to be later than the anniversary of the contract next following the
annuitant's seventieth birthday or the tenth anniversary of the contract,
whichever is later.
H. Any contract that does not provide cash surrender
benefits or does not provide death benefits at least equal to the minimum
nonforfeiture amount prior to the commencement of any annuity payments shall
include a statement in a prominent place in the contract that such benefits are
not provided.
I. Any paid-up annuity, cash surrender or death
benefits available at any time, other than on the contract anniversary under
any contract with fixed scheduled considerations, shall be calculated with
allowance for the lapse of time and the payment of any scheduled considerations
beyond the beginning of the contract year in which cessation of payment of
considerations under the contract occurs.
J. For any contract that 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 Subsections D, E, F, G and I of this
section, additional benefits payable (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 such additional benefits separately would require minimum nonforfeiture
amounts, paid-up annuity, cash surrender and death benefits.
K. The superintendent may adopt rules to
implement the provisions of this section.
L. After July 1, 2003, an insurer may elect to
apply its provisions to annuity contracts on a contract-form
by contract-form basis before July 1, 2005. In all other
instances this section shall become operative with respect
to
annuity contracts issued by the
insurer after June 30, 2005."