CHAPTER 348
FORMERLY
SENATE BILL NO. 533
AS AMENDED BY SENATE AMENDMENT NO. 1
AN ACT TO AMEND CHAPTERS 11 AND 29, TITLE 18, DELAWARE CODE RELATING TO THE INTEREST RATE USED FOR CALCULATING MINIMUM RESERVES AND NONFORFEITURE BENEFITS FOR LIFE INSURANCE POLICIES AND ANNUM CONTRACTS, AND FOR VARIABLE CONTRACTS.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:
Section 1. Subsection (e), Section 1112, Chapter 11, Title 18, Delaware Code is amended by striking all of said subsection (e) and inserting in lieu thereof the following new subsection (e):
"(e) Except as otherwise provided in paragraph (2) of subsection (b) of SI113 for group annuity and pure endowment contracts, the legal minimum standard for the valuation of annuities issued on and after January 1, 1932, shall be MeClintock's Table of Mortality Among Annuitants with interest at 4% per annum; however, (i) for annuities and pure endowments purchased under group annuity and pure endowment contracts the legal minimum standard may, at the option of the insurer, be the 1971 Group Annuity Mortality Table or any modification of such table approved by the Commissioner, with interest at 5% per annum, and (ii) annuities deferred ten (10) or more years and written in connection with life insurance shall be valued on the same basis as that used in computing the consideration or premiums therefor, or upon any higher standard at the option of the insurer."
Section 2. The introductory clause of Subsection (b)(1), Section 1113, Chapter 11, Title 18, Delaware Code is amended by striking all of said clause and inserting in lieu thereof the following new introductory clause:
"(b)(1) Except as otherwise provided in paragraph (2) of this subsection, the minimum standard for the valuation of all policies and contracts to which this Section applies shall be the Commissioners' reserve valuation methods defined in subsections (c), (d) and (g) of this Section, 3 1/2% interest except as otherwise provided in subparagraph d. of this paragraph, or in the case of policies and contracts, other than annuity and pure endowment contracts, issued on or after June 21, 1973, 4% interest for such policies issued prior to the effective date of this amendatory Act of 1980 and 4 1/2% interest for such policies issued on or after the effective date of this amendatory Act of 1980, and the following tables:"
Section 3. Subparagraph (bXl) a., Section 1113, Chapter 11, Title 18, Delaware Code is amended by striking the numeral "3" in line 9 of said paragraph and inserting in lieu thereof the numeral "6".
Section 4. Subparagraph (bX1) d., Section 1113, Chapter 11, Title 18, Delaware Code is amended by striking all of said subparagraph and inserting in lieu thereof the following new subparagraph:
"(bX1)d. For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in such contracts — either (i) the Group Annuity Mortality Table for 1951 or any modification of such table approved by the Commissioner; or (ii) at the option of the insurer, the 1971 Group Annuity
Mortality Table or any modification of such table approved by the Commissioner in which event 5% interest shall be used in determining the minimum standard for the valuation of such contracts; or (iii) at the option of the insurer, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts;"
Section 5. The introductory clause of paragraph (bX2), Section 1113, Chapter 11, Title 18, Delaware Code is amended by striking said clause in its entirety and inserting in lieu thereof the following new introductory clause:
"(2) The minimum standard for the valuation of all individual annuity and pure endowment contracts issued on or after the operative date of this paragraph, as defined herein, and for all annuities and pure endowments purchased on or after such operative date under group annuity and pure endowment contracts, shall be the Commissioner's reserve valuation methods defined in subsections (c) and (d) of this Section and the following tables and interest rates:"
Section 6. Subparagraphs a. through d. of subsection (bX2), Section 1113, Chapter 11, Title 18, Delaware Code are amended by repealing them in their entirety and inserting in lieu thereof the following subparagraphs a. through e.:
"a. For individual annuity and pure endowment contracts issued prior to the effective date of this amendatory Act of 1980, excluding any disability and accidental death benefits in such contracts—the 1971 Individual Annuity Mortality Table, or any modification of this table approved by the Commissioner, and 6% interest for single premium immediate annuity contracts, and 4% interest for all other individual annuity and pure endowment contracts;
b. For individual single premium immediate annuity contracts issued on or after the effective date of this amendatory Act of 1980, excluding any disability and accidental death benefits in such contracts—the 1971 Individual Annuity Mortality Table or any modification of this table approved by the Commissioner, and 7 1/2% interest.
c. For individual annuity and pure endowment contracts issued on or after the effective date of this amendatory Act of 1980, other than single premium immediate annuity contracts, excluding any disability and accidental death benefits in such contracts—the 1971 Individual Annuity Mortality Table, or any modification of this table approved by the Commissioner, and 5 1/2% interest for single premium deferred annuity and pure endowment contracts and 4 1/2% interest for all other such individual annuity and pure endowment contracts.
d. For all annuities and pure endowments purchased prior to the effective date of this amendatory Act of 1980 under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under such contracts—the 1971 Group Annuity Mortality Table, or any modification of this table approved by the Commissioner and 6% interest.
e. For all annuities and pure endowments purchased on or after the effective date of this amendatory Act of 1980 under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under such contracts—the 1971 Group Annuity Mortality Table, or any modification of this table approved by the Commissioner and 7 1/2% interest."
Section 7. Subsection (c), Section 1113, Chapter 11, Title 18, Delaware Code is amended by repealing the word "Reserves" in line 1 of said subsection and inserting in lieu thereof the following:
"Except as otherwise provided in subsection (d) and (g), reserves"
Section 8. Subparagraph (1) of subsection (c), Section 1113, Chapter 11, Title 18, Delaware Code is amended by repealing the symbol "%" in line 3 of said subparagraph.
Section 9. The final paragraph (not numbered) of subsection (c), Section 1113, Chapter 11, Title 18, Delaware Code is amended by repealing said paragraph and inserting in lieu thereof the following:
"Reserves according to the Commissioner's reserve valuation method for (i) life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums, (ii) group annuity and pure endowment contracts 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 5408 of the Internal Revenue Code, as now or hereafter amended, (iii) disability and accidental death benefits in all policies and contracts, and (iv) all other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts, shall be calculated by a method consistent with the principles of this subsection, except that any extra premiums charged because of impairments or special hazards shall be disregarded in the determination of modified net premiums."
Section 10. Section 1113, Chapter 11, Title 18, Delaware Code is amended by adding a new subsection (d) as follows:
(d) This subsection shall apply to all annuity and pure endowment contracts other than group annuity and pure endowment contracts 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 S408 of the Internal Revenue Code, as now or hereafter amended.
Reserves according to the Commissioner's annuity reserve valuation method for benefits under annuity or pure endowment contracts, excluding any disability and accidental death benefits in such contracts, shall be the greatest of the respective excesses of the present values at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiturc benefits, provided for by such contracts at the end of each respective contract year, over the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations, required by the terms of such contract, that become payable prior to the end of such respective contract year. The future guaranteed benefits shall be determined by using the mortality table, if any, and the interest rate, or rates, specified in such contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of such contracts to determine nonforfeiture values."
Section 11. Subsection (d), Section 1113, Chapter 11, Title 18, Delaware Code is amended by repealing said subsection in its entirety and inserting in lieu thereof the following:
"(e) In no event shall an insurer's aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, issued on or after the effective date of this Act, be less than the aggregate reserves calculated in accordance with the methods set forth in subsections (c), (d) and (g) of this section and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for such policies."
Section 12. Subsection (e), Section 1113, Chapter 11, Title 18, Delaware Code is amended by repealing said subsection in its entirety and inserting in lieu thereof the following:
"(f) Reserves for any category of policies, contracts or benefits as established by the Commissioner may be calculated, at the option of the insurer, according to any standards which produce greater aggregate reserves for such category than those calculated according to the minimum standard herein provided, but the rate or rates of interest used for policies and contracts, other than annuity and pure endowment contracts, shall not be higher than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided for therein."
Section 13. Subsection (f), Section 1113, Chapter 11, Title 18, Delaware Code is amended by repealing said subsection in its entirety and inserting in lieu thereof the following:
"(g) If in any contract year the gross premium charged by any life insurer on any policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve thereon but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for such policy or contract shall be the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for such policy or contract, or the reserve calculated by the method actually used for such policy or contract but using the minimum standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium."
Section 14. Amend 52929(e), Chapter 29, Title 18, Delaware Code, by striking the date "January 1, 1986" as it appears in the first paragraph and inserting the following:
"the effective date of the amendatory act of 1980 and a rate of interest not exceeding 5 1/2% per annum may be used for policies issued on or after the effective date of this amendatory act of 1980, except that for any single premium whole life or endowment insurance policy, a rate of interest not exceeding 6 1/2% per annum may be used'; and further amending 52929(e) by striking the number '3' and inserting in lieu thereof the number '6'."
Section 15. Amend §2929(f), Chapter 29, Title 18, Delaware Code by striking the date " January 1, 1986" as it appears in the first sentence of said section and inserting the following:
"the effective date of this amendatory act of 1980 and a rate of interest not exceeding 5 1/2% per annum may be used for policies issued on or after the effective date of this amendatory act of 1980, except that for any single premium whole life or endowment insurance policy a rate of interest not exceeding 6 1/2% per annum may be used."
Section 16. Subsection (e), Section 2932, Chapter 29, Title 18, Delaware Code is amended by repealing the word and number "and 2925" in line I of said subsection and inserting in lieu thereof the following:
", 2925 and 2929A".
Section 17. Chapter 29, Title 18, Delaware Code is amended by adding a new section to be designated "52929A. Standard Nonforfeiture Law for Individual Deferred Annuities" and to read as follows:
"(a) This Section shall be known as the Standard Nonforfeiture Law for Individual Deferred Annuities.
(b) 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, 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 which shall be delivered outside this State through an agent or other representative of the company issuing the contract.
(c) In the case of contracts issued on or after the operative date of this Act as defined in subsection (1), no contract of annuity, except as stated in subsection (b), 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 Commissioner are at least as favorable to the contract holder, upon cessation of payment of considerations under the contract.
(1) That upon cessation of payment of considerations under a contract, the company will grant a paid-up annuity benefit on a plan stipulated in the contract of such value as is specified in subsections (e), (f), (g), (h) and (j).
(2) If a contract provides 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 company will pay in lieu of any paid-up annuity benefit a cash surrender benefit of such amount as is specified in subsections (e), (f), (h) and (j). The company shall reserve the right to defer the payment of such cash surrender benefit for a period six (6) months after demand therefor with surrender of the contract.
(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.
(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 company to the contract, any indebtedness to the company on the contract or any prior withdrawals from or partial surrenders of the contract.
Notwithstanding the requirements of this subsection, any deferred annuity contract may provide that if no considerations have been received under a contract for a period of two (2) full years and the portion of the paid-up annuity benefit at maturity on the plan stipulated in the contract arising from considerations paid prior to such period would be less than twenty dollars ($20.00) monthly, the company 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.
(d) The minimum values as specified in subsections (e), (f), (g), (h) and (j) 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 subsection.
(1) With respect to contracts providing for flexible considerations, 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 a rate of interest of three percent (3%) per annum of percentages of the net considerations (as hereinafter defined) paid prior to such time, decreased by the sum of
a. any prior withdrawals from or partial surrenders of the contract accumulated at a rate of interest of three percent (3%) per annum; and
b. the amount of any indebtedness to the company on the contract, including interest due and accrued; and increased by any existing additional amounts credited by the company to the contract.
The net considerations for a given contract year used to define the minimum nonforfeiture amount shall be an amount not less than zero and shall be equal to the corresponding gross considerations credited to the contract during that contract year less an annual contract charge of thirty dollars ($30.00) and less a collection charge of one dollar and twenty-five cents ($1.25) per consideration credited to the contract during that contract year. The percentages of net considerations shall be sixty-five percent (65%) of the net consideration for the first contract year and eighty-seven and one-half percent (87 1/2%) of the net considerations for the second and later contract
years. Notwithstanding the provisions of the preceding sentence, the percentage shall be sixty-five percent (65%) 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 contract years for which the percentage was sixty-five percent (65%).
(2) With respect to contracts providing for fixed scheduled
considerations, minimum nonforfeiture amounts shall be calculated on the assumption that considerations are paid annually in advance and shall be defined as for contracts with flexible considerations which are paid annually with two exceptions:
a. The portion of the net consideration for the first contract year to be accumulated shall be the sum of sixty-five percent (65%) of the net consideration for the first contract year plus twenty-two and one-half percent (22 1/2%) 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.
b. The annual contract charge shall be the lesser of (i) thirty dollars ($30.00) or (ii) ten percent (10%) of the gross annual consideration.
(3) With respect to contracts providing for a single consideration, minimum nonforfeiture amounts shall be defined as for contracts with flexible considerations except that the percentage of net consideration used to determine the minimum nonforfeiture amount shall be equal to ninety percent (90%) and the net consideration shall be the gross consideration less a contract charge of seventy-five dollars ($75.00).
(e) 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 rate specified in the contract for determining the minimum paid-up annuity benefits guaranteed in the contract.
(f) For contracts which 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 which 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 (1%) 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 company on the contract, including interest due and accrued, and increased by any existing additional amounts credited by the company 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.
(g) For contracts which 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 company to the contract. For contracts which do not provide any death benefits prior to the commencement of any annuity payments, such present values shall be calculated on the basis 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.
(h) For the purpose of determining the benefits calculated under subsections (f) and CO, 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.
(i) Any 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 commencement of any annuity payments shall include a statement in a prominent place in the contract that such benefits are not provided.
(j) 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.
(a) For any contract which provides, within the same contract by rider or supplemental contract provisions, 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 fel, 41, (g), (11) and (J), additional benefits payable (I) in the event of total and permanent disability, (ii) as reversionary annuity or deferred reversionary annuity benefits, or (iii) 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.
(1) After the effective date of this Section, any company may file with the Commissioner a written notice of its election to comply with the provisions of this Section after a specified date before the second anniversary of the effective date of this Section. After the filing of such notice, then upon such specified date, which shall be the operative date of this Section for such company, this Section shall become operative with respect to annuity contracts thereafter issued by such company. If a company makes no such election, the operative date of this Section for such company shall be the second anniversary of the effective date of this Section."
Section 18. This Act shall take effect upon approval by the Governor.
Approved July 8, 1980.