South Carolina General Assembly
116th Session, 2005-2006

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Bill 458

Indicates Matter Stricken
Indicates New Matter


(Text matches printed bills. Document has been reformatted to meet World Wide Web specifications.)

Indicates Matter Stricken

Indicates New Matter

COMMITTEE REPORT

March 23, 2005

S. 458

Introduced by Senators Thomas and Richardson

S. Printed 3/23/05--S.

Read the first time February 9, 2005.

            

THE COMMITTEE ON BANKING AND INSURANCE

To whom was referred a Bill (S. 458) to amend the Code of Laws of South Carolina, 1976, by adding Section 38-69-245 so as to provide for minimum nonforfeiture amounts for individual deferred annuities, etc., respectfully

REPORT:

That they have duly and carefully considered the same and recommend that the same do pass:

DAVID L. THOMAS for Committee.

            

STATEMENT OF ESTIMATED FISCAL IMPACT

ESTIMATED FISCAL IMPACT ON GENERAL FUND EXPENDITURES:

$0 (No additional expenditures or savings are expected)

ESTIMATED FISCAL IMPACT ON FEDERAL & OTHER FUND EXPENDITURES:

$0 (No additional expenditures or savings are expected)

EXPLANATION OF IMPACT:

The Department of Insurance states that this bill would have no impact on the General Fund of the State or on federal and/or other funds.

Approved By:

Don Addy

Office of State Budget

A BILL

TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 38-69-245 SO AS TO PROVIDE FOR MINIMUM NONFORFEITURE AMOUNTS FOR INDIVIDUAL DEFERRED ANNUITIES; TO AMEND SECTION 38-69-240, RELATING TO THE CALCULATION OF MINIMUM NONFORFEITURE AMOUNTS OF CONTRACTS ISSUED AFTER JUNE 30, 2007, SO AS TO CHANGE THE TIME OF APPLICABILITY ON THESE CONTRACTS; AND TO AMEND SECTION 2 OF ACT 313 OF 2002, RELATING TO TEMPORARY PROVISIONS RELATING TO MINIMUM VALUES OF ANY PAID-UP ANNUITY, CASH SURRENDER, OR DEATH BENEFITS AVAILABLE UNDER CERTAIN ANNUITIES, SO AS TO CHANGE THE DATE OF APPLICABILITY FROM 2005 TO 2007 TO THESE CONTRACTS AND PROVIDE THAT CONTRACTS ENTERED INTO AFTER THE EFFECTIVE DATE OF THIS ACT AND BEFORE JULY 1, 2007, MAY APPLY, AT THE INSURER'S OPTION, THE MINIMUM VALUES AS PROVIDED IN THIS ACT ON CERTAIN ANNUITIES ON A CONTRACT-FORM-BY-CONTRACT-FORM BASIS.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION    1.    Article 5, Chapter 69, Title 38 of the 1976 Code is amended by adding:

"Section 38-69-245.    (A)    This section applies to contracts issued after June 30, 2007, and may be applied by an insurer, on a contract-form-by-contract-form basis, to a contract issued after June 30, 2005, and before July 1, 2007.

(B)    The minimum values as specified in Sections 38-69-250, 38-69-260, 38-69-270, 38-69-280, and 38-69-300 of any paid-up annuity, cash surrender, or death benefits available under an annuity contract must be based upon minimum nonforfeiture amounts as defined in this section.

(C)    The minimum nonforfeiture amount at any time at or before the commencement of an annuity payment is equal to an accumulation up to that time at a rate of interest as indicated in subsection (E) of the net considerations paid before that time, decreased by the sum of items of (1) through (4):

(1)    any previous withdrawals from or partial surrenders of the contract accumulated at a rate of interest as indicated in subsection (E);

(2)    an annual contract charge of fifty dollars, accumulated at a rate of interest as indicated in subsection (E);

(3)    any premium tax paid by the company for the contract, accumulated at a rate of interest as indicated in subsection (E); and

(4)    the amount of any indebtedness to the company on the contract, including interest due and accrued.

(D)    The net considerations for a given contract year used to define the minimum nonforfeiture amount must be an amount equal to eighty-seven and one-half percent of the gross considerations credited to the contract during that contract year.

(E)(1)    The interest rate used in determining minimum nonforfeiture amounts must be an annual rate of interest determined as the lesser of three percent a year and the following, which must be specified in the contract if the interest rate is 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 1/20th of one percent, specified in the contract no longer than fifteen months before the contract issue date or redetermination date pursuant to subitem (d);

(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.

(2)    The redetermination date, basis, and period, if any, must 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.     (F)    During the period or term that a contract provides substantive participation in an equity indexed benefit, it may increase the reduction described in subsection (E)(1)(b) 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 after that, of the additional reduction must not exceed the market value of the benefit. The director or his designee may require a demonstration that the present value of the additional reduction does not exceed the market value of the benefit. If a demonstration is not acceptable to the director, or his designee, he may disallow or limit the additional reduction.

(G)    The director, or his designee, may adopt rules to implement the provisions of subsection (F) 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 director, or his designee, determines adjustments are justified."

SECTION    2.    Section 38-69-240 of the 1976 Code is amended to read:

"Section 38-69-240.    (A)    This section applies to a contract issued before July 1, 2005, and may be applied by an insurer, on a contract-form-by-contract-form basis, to a contract issued after June 30, 2005, and before July 1, 2007. This section does not apply to a contract issued after June 30, 2007.

(B)    The minimum values as specified in Sections 38-69-250, 38-69-260, 38-69-270, 38-69-280, and 38-69-300 of any paid-up annuity, cash surrender, or death benefits available under an annuity contract must be based upon minimum nonforfeiture amounts as defined in this section, as follows:.

(a)(C)    With respect to contracts a contract providing for flexible considerations, the minimum nonforfeiture amount at any time at or prior to before the commencement of any an annuity payments payment is equal to an accumulation up to that time at a rate of interest of three percent per annum a year of percentages of the net considerations (as hereinafter defined) paid prior to before that time, decreased by the sum of:

(i)(1)    any prior previous withdrawals from or partial surrenders of the contract accumulated at a rate of interest of three percent per annum a year; and

(ii)(2)    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.

(D)    The net considerations for a given contract year used to define the minimum nonforfeiture amount are must be an amount not less than zero and is are equal to the corresponding gross considerations credited to the contract during that contract year less an annual contract charge of thirty dollars and less a collection charge of one dollar and twenty-five cents per for each consideration credited to the contract during that contract year. The percentages of net considerations are sixty-five percent of the net consideration for the first contract year and eighty-seven and one-half percent of the net considerations for the second and later contract years. Notwithstanding the provisions of the preceding sentence, the percentage is sixty-five percent of the portion of the total net consideration for any renewal contract year which exceeds by not more than two times the sum of those portions of the net considerations in all prior previous contract years for which the percentage was sixty-five percent.

(b)(E)    With respect to contracts a contract providing for fixed scheduled considerations, minimum nonforfeiture amounts are calculated on the assumption that considerations are paid annually in advance and are defined as for contracts with flexible considerations which are paid annually with two exceptions:

(i)(1)    the portion of the net consideration for the first contract year to be accumulated is the sum of sixty-five percent of the net consideration for the first contract year plus twenty-two and one-half percent of the excess of the net consideration for the first contract year over the lesser of the net considerations for the second and third contract years.;

(ii)(2)    the annual contract charge is the lesser of:

(a)    thirty dollars; or

(b)    ten percent of the gross annual considerations.

(c)(F)    With respect to contracts a contract providing for a single consideration, minimum nonforfeiture amounts are defined as for contracts with flexible considerations except that the percentage of net consideration used to determine the minimum nonforfeiture amount is equal to ninety percent and the net consideration is the gross consideration less a contract charge of seventy-five dollars."

SECTION    3.    Section 2 of Act 313 of 2002 is amended to read:

"Section 2.    Notwithstanding the interest rate provisions of Section 38-69-240(A) of the 1976 Code, for prospective sales of contracts entered into pursuant to Section 38-69-240 from this act's effective date through January 1, 2004 June 30, 2007, the following applies may be applied, at the insurer's option, to a contract issued after the effective date of this act and before July 1, 2007, on a contract-form-by-contract-form basis:

(1)    The minimum values as specified in Sections 38-69-250, 38-69-260, 38-69-270, 38-69-280, and 38-69-300 of the 1976 Code of any paid-up annuity, cash surrender, or death benefits available under an annuity contract providing for flexible considerations, the minimum nonforfeiture amount at any time at or prior to before the commencement of any annuity payments is equal to an accumulation up to that time at a rate of interest one and one-half percent per annum a year of percentages of the net considerations (as hereinafter defined) paid prior to before that time, decreased by the sum of:

(i)(a)    any prior previous withdrawals from or partial surrenders of the contract accumulated at a rate of interest of one and one-half percent per annum a year; and

(ii)(b)    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.

(2)    The net considerations for a given contract year used to define the minimum nonforfeiture amount are must be an amount not less than zero and are equal to the corresponding gross considerations credited to the contract during that contract year less an annual contract charge of thirty dollars and less a collection charge of one dollar and twenty-five cents per for each consideration credited to the contract during that contract year. The percentages of net considerations are sixty-five percent of the net consideration for the first contract year and eighty-seven and one-half percent of the net considerations for the second and later contract years. Notwithstanding the provisions of the preceding sentence, the percentage is sixty-five percent of the portion of the total net consideration for any renewal contract year which exceeds by not more than two times the sum of those portions of the net considerations in all prior previous contract years for which the percentage was sixty-five percent."

SECTION    4.    This act takes effect upon approval by the Governor.

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