Texas Administrative Code
Title 28 - INSURANCE
Part 1 - TEXAS DEPARTMENT OF INSURANCE
Chapter 4 - LIFE AND ANNUITY
Subchapter U - VARIABLE ANNUITIES
Section 4.2105 - Contract Requirements
Universal Citation: 28 TX Admin Code § 4.2105
Current through Reg. 50, No. 13; March 28, 2025
Variable annuity contracts must conform to the requirements of this section in order to obtain the commissioner's approval.
(1) Filing of variable annuity contracts. All variable annuity contracts, all riders, endorsements, applications, and other documents that are attached to and made a part of the contract and that relate to the variable nature of the contract, must be filed with the commissioner and approved, as applicable, by the commissioner before delivery or issuance for delivery in this state.
(A) Each variable
annuity contract and related forms must be filed according to Chapter 3,
Subchapter A of this title (relating to Submission Requirements for Filings and
Departmental Actions Related to Such Filings).
(B) The commissioner may approve variable
annuity contracts and related forms with provisions the commissioner deems to
be not less favorable to the contract holder, certificate holder, and the
beneficiary than those required by these sections.
(2) Mandatory contract provisions. Every variable annuity contract must contain at least the following.
(A) The cover page or page corresponding to
the cover page of each contract must contain:
(i) a prominent statement that the benefits
under the contract are on a variable basis; and
(ii) a prominent statement that the dollar
amounts will vary to reflect the investment experience of a separate account or
separate accounts.
(B) A
full description of the investment increment factors to be used in computing
dollar amounts of variable benefits or variable contractual payments of values,
and may guarantee that expense and/or mortality results will not adversely
affect such dollar amounts. In the case of an individual variable annuity
contract under which the expense and mortality results may adversely affect the
dollar amount of benefits, the expense and mortality factors must be stipulated
in the contract. In computing the dollar amount of variable benefits or other
contractual payments or values under an individual variable annuity contract:
(i) the annual net investment increment
assumption may not exceed 5.0% except with the approval of the
commissioner;
(ii) to the extent
that the level of benefits may be affected by future mortality results, the
mortality factor must be determined from the Annuity Mortality Table for 1949,
Ultimate, or any modification of that table not having a higher mortality rate
at any age, or, if approved by the commissioner, from another table.
(C) A provision designating the
separate account to be used and stating that the portion of the assets of any
such separate account equal to the reserves and other contract liabilities with
respect to such account may not be chargeable with liabilities arising out of
any other business the company may conduct.
(D) As appropriate, a provision for a grace
period.
(i) For individual variable annuities
that provide for the payment of periodic stipulated payments, a grace period of
31 days within which any stipulated payment to the insurer falling due after
the first may be made, during which period of grace the contract must continue
in force. The contract may include a statement of the basis for determining the
date that any such payment received during the period of grace will be applied
to produce the values under the contract arising therefrom.
(ii) For group variable annuities, a
provision that the contract holder or premium payor is entitled to a grace
period of 31 days for the payment of any premium due except the first, during
which grace period the contract must continue in force, unless the contract
holder or premium payor has given the insurer written notice of discontinuance
in advance of the date of discontinuance and in accordance with the terms of
the contract. The contract may provide that the contract holder or premium
payor will be liable to the insurer for the payment of pro rata premium for the
time the contract was in force during such grace period.
(E) A provision that, at any time within two
years from the date of default in making periodic stipulated payments to the
insurer during the life of the annuitant and unless the cash surrender value
has been paid, 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. The contract may include a
statement of the basis for determining the date that the amount to cover such
overdue payments and any indebtedness will be applied to produce the values
under the contract arising therefrom.
(F) A unique definition of any cash surrender
values available under the contract.
(G) A provision for nonforfeiture benefits as
defined in paragraph (3) of this section.
(H) A provision defining the documents that
make up the entire contract.
(I) An
identification of the owner of the contract.
(J) A provision stating that the company must
mail to the individual contract holder or group contract holder at least once
each year after the first at the contract holder's last address known to the
company a statement reporting the investments held in the separate
account.
(K) For individual
variable annuities, a provision that the company must mail to the contract
holder at least once in each contract year, after the first at the contract
holder's last address known to the company, a statement reporting the status of
the policy as of a date not more than four months before the date of mailing.
In the case of an annuity contract under which payments have not yet commenced,
the statement must contain:
(i) the number of
accumulation units credited to such contract and the dollar value of a unit;
or
(ii) the value of the contract
holder's account.
(3) Reserves and nonforfeiture benefits.
(A) The reserve liability for variable
annuities must be established under Insurance Code Chapter 425, Subchapter B,
concerning Standard Valuation Law, in accordance with actuarial procedures that
recognize the variable nature of the benefits provided and any mortality
guarantees.
(B) The provisions of
this paragraph relating to nonforfeiture benefits do not apply to any:
(i) reinsurance;
(ii) group annuity contract purchases in
connection with one or more retirement plan or plans of deferred compensation
established or maintained by or for one or more employers (including
partnerships or sole proprietorships), employee organizations, or any
combination thereof, or other plans providing individual retirement accounts or
individual retirement annuities under Internal Revenue Code §408, as now
or hereafter amended;
(iii) premium
deposit fund;
(iv) investment
annuity;
(v) immediate
annuity;
(vi) deferred annuity
contract after annuity payments have commenced;
(vii) reversionary annuity; or
(viii) to any contract that is to be
delivered outside this state through an agent or other representative of the
company issuing the contract.
(C) To the extent that any variable annuity
contract provides benefits that do not vary in accordance with the investment
performance of a separate account before the annuity commencement date, such
contract must contain provisions that satisfy the requirements of Insurance
Code Chapter 1107, concerning Standard Nonforfeiture Law for Certain Annuities,
and may not otherwise be subject to this section.
(D) No variable annuity contract, except as
stated in subparagraphs (B) and (C) of this paragraph, may be delivered or
issued for delivery in this state unless it contains in substance the following
provisions, or corresponding provisions that in the opinion of the commissioner
are at least as favorable to the contract holder, upon cessation of payment of
considerations under the contract.
(i) That
upon cessation of payment of considerations under a contract, the company will
grant a paid-up annuity benefit on a plan described in the contract that
complies with subparagraph (H) of this paragraph. Such description must include
a statement of the mortality table, if any, and guaranteed or assumed interest
rates used in calculating annuity payments.
(ii) If a contract provides for a lump sum
settlement at maturity, or at any other time, that upon surrender of the
contract at or before the commencement of any annuity payments, the company
will pay in lieu of any paid-up annuity benefit a cash surrender benefit as
described in the contract that complies with subparagraph (I) of this
paragraph. The contract may provide that the company reserves the right, at its
option, to defer the determination and payment of any cash surrender benefit
for any period during which the New York Stock Exchange is closed for trading
(except for normal holiday closing) or when the Securities and Exchange
Commission has determined that a state of emergency exists that may make such
determination and payment impractical.
(iii) 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.
(E) The minimum values as
specified in this section of any paid-up annuity, cash surrender, or death
benefits available under a variable annuity contract must be based upon
nonforfeiture amounts meeting the requirements of this paragraph. The minimum
nonforfeiture amount on any date before the annuity commencement date must be
an amount equal to the percentages of net considerations (as specified in
subparagraph (F) of this paragraph) increased (or decreased) by the net
investment return allocated to the percentages of net considerations, that
amount must be reduced to reflect the effect of:
(i) any partial withdrawals from or partial
surrenders of the contract;
(ii)
the amount of any indebtedness on the contract, including interest due and
accrued;
(iii) an annual contract
charge not less than zero nor greater than $30 less the amount of any annual
contract charge deducted from any gross considerations credited to the contract
during such contract year; and
(iv)
a transaction charge of $10 for each transfer to another separate account or to
another investment division within the same separate account.
(F) The percentages of net
considerations used to define the minimum nonforfeiture amount in subparagraph
(E) of this paragraph must meet the requirements of this subparagraph.
(i) With respect to contracts providing for
periodic considerations, the net considerations for a given contract year used
to define the minimum nonforfeiture amount must be an amount not less than zero
and must be equal to the corresponding gross considerations credited to the
contract during that contract year less an annual contract charge of $30 and
less a collection charge of $1.25 per consideration credited to the contract
during that contract year. The percentages of net considerations must be 65%
for the first contract year and 87.5% for the second and later contract years.
Notwithstanding the provisions of the preceding sentence, the percentage must
be 65% of the portion of the total net consideration for any renewal contract
year that 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
65%.
(ii) With respect to contracts
providing for a single consideration, the net consideration used to define the
minimum nonforfeiture amount must be the gross consideration less a contract
charge of $75. The percentage of net consideration must be 90%.
(G) Demonstration that a
contract's nonforfeiture amounts comply with this paragraph must be based on
the following assumptions:
(i) values should
be tested at the ends of each of the first 20 contract years;
(ii) a net investment return of 7.0% per year
should be used;
(iii) if the
contract provides for transfers to another separate account or to another
investment division within the same separate account, one transfer per contract
year should be assumed;
(iv) with
respect to contracts providing for periodic considerations, monthly
considerations of $100 should be assumed for each of the first 240
months;
(v) with respect to
contracts providing for a single consideration, a $10,000 single consideration
should be assumed; and
(vi) if the
contract provides for allocation of considerations to both fixed and variable
accounts, 100% of the considerations should be assumed to be allocated to the
variable account.
(H) Any
paid-up annuity benefit available under a variable annuity contract must be
such that its present value on the annuity commencement date is at least equal
to the minimum nonforfeiture amount on the date. Such present value must be
computed using the mortality table, if any, and the guaranteed or assumed
interest rates used in calculating the annuity payments.
(I) For variable annuity contracts that
provide cash surrender benefits, the cash surrender benefit at any time before
the annuity commencement date may not be less than the minimum nonforfeiture
amount next computed after the request for surrender is received by the
company. The death benefit under such contracts must be at least equal to the
cash surrender benefit.
(J) Any
variable annuity contract that does not provide cash surrender benefits or does
not provide death benefits at least equal to the minimum nonforfeiture amount
before the annuity commencement date must include a statement in a prominent
place in the contract that such benefits are not provided.
(K) Notwithstanding the requirements of this
section, a variable annuity contract may provide under the situations specified
in clause (i) or clause (ii) of this subparagraph that the company, at its
option, may cancel the annuity and pay the contract holder its accumulated
value and by such payment be released of any further obligation under such
contract:
(i) if at the time the annuity
becomes payable the accumulated value is less than $2,000, or would provide an
income the initial amount of which is less than $20 per month; or
(ii) if before the time the annuity becomes
payable under a periodic payment variable annuity contract no considerations
have been received under the contract for a period of two full years, and both:
(I) the total considerations paid before such
period, reduced to reflect any partial withdrawals from or partial surrenders
of the contract; and
(II) the
accumulated value amounts to less than $2,000.
(L) For any variable annuity 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 must 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 (E) of this paragraph, additional benefits payable in the event of
total and permanent disability, as reversionary annuity or deferred
reversionary annuity benefits, or as other contract benefits additional to life
insurance, endowment, and annuity benefits, must be disregarded in ascertaining
the minimum nonforfeiture amounts, paid-up annuity, cash surrender, and death
benefits required by this section. The inclusion of such additional benefits
may 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.
(4) Applications. The application for a variable annuity contract must contain:
(A) a
prominent statement that the benefits may increase or decrease in accordance
with the experience of a separate account; and
(B) the portion of the premium allocable on
the date of issue to any fixed dollar benefits and the portion allocable on the
date of issue to the variable benefits.
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