Modified Guaranty Annuity

PURPOSE: This rule provides guidelines for Modified Guaranteed Annuities, a variable annuity whose assets are placed in a separate account. (1) Applicability and Scope. This rule shall apply to— (A) The qualifications of insurance producers who sell Modified Guaranteed Annuity contracts in this state; (B) The qualification of insurers who issue these contracts; (C) The required contract form and provisions; and (D) The manner in which separate account assets, supporting these issued contracts, are to be maintained and reported. (2) Definitions. As used in this rule, the following terms and phrases shall mean: (A) Modified guaranteed annuity means a deferred annuity contract, the underlying assets of which are held in a separate account, and the values of which are guaranteed if held for specified periods. It contains nonforfeiture values that are based upon a market-value adjustment formula if held for shorter periods. This formula may or may not reflect the value of assets held in the separate account. The assets underlying the contract must be in a separate account during the period(s) when the contract holder can surrender the contract; (B) Interest credits means all interest that is credited to the contract; (C) Separate account means a separate account established pursuant to section 376.309, RSMo or pursuant to the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer; and (D) Director means the director of the Missouri Department of Commerce and Insurance. (3) Authority of Insurers. The following requirements apply to all insurers who are either seeking authority to issue Modified Guaranteed Annuities in Missouri or who currently have authority to issue Modified Guaranteed Annuities in Missouri: (A) Licensing and Approval to Do Business. 1. No company shall deliver or issue for delivery Modified Guaranteed Annuities within Missouri unless it has a certificate of authority to do life insurance or annuity business in the state. The director must be satisfied that the company’s condition or method of operation in connection with the issuance of these contracts will not render its operation hazardous to either the public or to its Missouri policyholders. The director shall consider, among other things, the history and financial condition of the company; the character, responsibility and fitness of the officers and directors of the company; and the law(s) and rule(s) under which the company is authorized in its state of domicile to issue Modified Guaranteed Annuities. 2. Companies licensed and having a satisfactory record of doing business in Missouri for a period of at least three (3) years may be deemed to have satisfied the director with respect to paragraph (3)(A)1. 3. Before any company delivers or issues for delivery Modified Guaranteed Annuities within Missouri, it shall submit to the director the following: A. A general description of the kinds of annuities it intends to issue; B. A copy of the statutes and rules of its state of domicile under which it is authorized to issue Modified Guaranteed Annuities; and C. Biographical data of the officers and directors of the company on the National Association of Insurance Commissioners (NAIC) uniform biographical data forms, included herein; (B) Use of Sales Materials. 1. An insurer authorized to sell Modified Guaranteed Annuities in Missouri shall not use any sales material, advertising material, descriptive literature or other materials of any kind, in connection with the solicitation of its Modified Guaranteed Annuities in Missouri which is false, misleading, deceptive or inaccurate. 2. Illustrations of benefits payable under any Modified Guaranteed Annuity shall not include projections of past investment experience into the future or attempted predictions of future investment experience. Hypothetical assumed interest credits may be used to illustrate possible levels of benefits. 3. Before any insurer shall deliver or issue for delivery any Modified Guaranteed Annuity contract in Missouri, the director may require the filing of a copy of any prospectus or other sales material to be used in connection with the marketing of the insurer’s Modified Guaranteed Annuity contract. The sales material must clearly illustrate that there can be both upward and downward adjustments due to the application of the market value adjustment formula in determining nonforfeiture benefits; (C) Reports. Any insurer authorized to transact the business of Modified Guaranteed Annuities in Missouri shall submit to the director— 1. A separate account annual statement which shall include the business of its Modified Guaranteed Annuities; and 2. This additional information concerning its Modified Guaranteed Annuity operations or separate accounts as the director shall deem necessary; and (D) Authority of Director to Disapprove. Any material required to be filed with and approved by the director shall be subject to disapproval if, at any time, it is found by the director not to comply with the standards established by this rule. (4) Filing of Contracts. The filing requirements applicable to Modified Guaranteed Annuities shall be those set out in 20 CSR 400-8.200, to the extent appropriate. Filings shall include a demonstration, in a form satisfactory to the director, that the nonforfeiture provisions of the contract(s) comply with section 376.671, RSMo. (5) Modified Guaranteed Annuity Contract Requirements. (A) Mandatory Contract Benefit and Design Requirements. 1. Any Modified Guaranteed Annuity contract delivered or issued for delivery in Missouri 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 Missouri unless it contains, in substance, the following provisions: A. A provision that there shall be a grace period of thirty (30) days or one (1) month within which any payment due the insurer, other than the first payment, may be made. The contract shall continue in force during the grace period. The contract may include a statement of the basis for determining the date as of which any 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 (1) year from the date of default in making periodic 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 the following conditions: Payment to the insurer of overdue payments as required by contract and payment of all indebtedness to the insurer on the contract, including interest. The contract may include a statement of the basis for determining the date as of which the amount to cover overdue payments and indebtedness shall be applied to produce the values under the contract; and C. A provision that, to the extent set out in any contract, the portion of the assets of any separate account which equals the reserves and other contract liabilities of the account shall not be chargeable with any other liabilities arising out of the 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 stating that the formula provides reasonable equity to both the contract holder and the insurance company. (B) Nonforfeiture Benefits. 1. This subsection shall not apply to any of the following: A. Reinsurance; B. Group annuity contracts purchased in connection with one (1) or more retirement plans or plans of deferred compensation established or maintained by or for one (1) or more employers (including partnerships or sole proprietorships), employee organizations or any combination of them, other than plans providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code; C. Premium deposit fund; D. Investment annuity; E. Immediate annuity; F. Deferred annuity contract after annuity payments have commenced; G. Reversionary annuity; or H. Contract which is to be delivered outside Missouri by an insurance producer or other representative of the company issuing the contract. 2. No Modified Guaranteed Annuity contract shall be delivered or issued for delivery in Missouri unless it contains, in substance, the following provisions: A. That upon cessation of payment of considerations under a contract, the insurer will grant a paid-up annuity benefit on a plan described in the contract that complies with paragraph (5)(B)4. The description will include a statement of the mortality table, if any, and guaranteed or assumed interest rates used in calculating annuity payments; and B. That 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 (5)(B)5. The contract may provide that the insurer may defer payment of the cash surrender benefit for a period of six (6) months after demand. 3. The minimum values, as specified in subsection (5)(B), 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 paragraph (5)(B)3. The Unadjusted Minimum Nonforfeiture Amount on any date prior to the annuity commencement date shall be an amount not less than that required by section 376.671, RSMo. The minimum nonforfeiture amount shall be the unadjusted minimum nonforfeiture amount adjusted by the marketvalue adjustment formula contained in the contract. 4. 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. This present value shall be computed using the mortality table, if any, and the guaranteed or assumed interest rates used in calculating the annuity payments. 5. 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 these contracts shall be at least equal to the cash surrender benefit. 6. 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 these benefits are not provided. 7. Despite the requirements of this section, a Modified Guaranteed Annuity contract may provide under the situations specified in subparagraph (5)(B)7.A. or B., 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 this payment be released of any further obligation under this 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 two thousand dollars ($2,000) or would provide an income, the initial amount of which is less than twenty dollars ($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 this 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 two thousand dollars ($2,000). 8. For any Modified Guaranteed Annuity contract which provided, 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. Despite the provisions of paragraph (5)(B)2., 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 these additional benefits, shall be disregarded in ascertaining the minimum nonforfeiture amounts, paid-up annuity, cash surrender and death benefits that may be required by subsection (5)(B). The inclusion of the additional benefits shall not be required in any paidup 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 contain language in substance as follows: Amounts payable under the contract are subject to a market value adjustment prior (to a date(s) specified in the contract). The statement shall be placed immediately above the signature line. (6) Reserve Liabilities. Reserve liabilities for Modified Guaranteed Annuities shall be established in accordance with actuarial procedures that recognize— (A) That assets of the separate account are based on market values; (B) The variable nature of benefits provided; and (C) Any Mortality Guarantees. As a minimum, the separate account liability will equal the surrender value based upon the marketvalue adjustment formula contained in the contract. If that liability is greater than the market value of the assets, a transfer of assets will be made into the separate account so that the market value of the assets at least equals that of the liabilities. Also, any additional reserve that is needed to cover future guaranteed benefits will also be set up by the valuation actuary. The market-value adjustment formula, the interest guarantees and the degree to which projected cash flow of assets and liabilities are matched also must be considered. Each year, the valuation actuary must provide an opinion on whether the assets in the separate account are adequate to provide all future benefits that are guaranteed. (7) Separate Accounts. The following requirements apply to the establishment and administration of Modified Guaranteed Annuity separate accounts by any domestic insurer: (A) Establishment and Administration of Separate Accounts. Any domestic insurer issuing Modified Guaranteed Annuities shall establish one (1) or more separate accounts pursuant to section 376.309, RSMo; (B) Amounts in the Separate Account. The insurer shall maintain in each separate account assets with a market or other value, comporting to standards set out in section 376.380, RSMo at least equal to the valuation reserves and other contract liabilities respecting this account; (C) Valuation of Separate Account Assets. Investments of the separate account shall be valued at their market value on the date of valuation or as allowed in 376.309.5., RSMo; and (D) Investment Laws. Unless otherwise approved by the director, separate accounts relating to Modified Guaranteed Annuities will be subject to the investment requirements of section 376.309.4., RSMo. (8) Reports to Policyholders. Companies annually will provide their contract holders with a report showing both the account value and the cash surrender value. The report clearly should indicate that the account value is prior to the application of any surrender charges or market-value adjustment formula. It should also specify the surrender charge and market value adjustment used to determine the cash surrender value. (9) Foreign Companies. If the law or regulation in the place of domicile of a foreign company provides a degree of protection to the policyholders and the public which is substantially similar to that provided by these rules, the director, to the extent deemed appropriate by him/her, may consider compliance with law or rule as compliance with this rule. (10) Authorization of Insurance Producers. No person, corporation, partnership or other legal entity may sell or offer for sale in this state any Modified Guaranteed Annuity contract unless licensed to sell variable annuities under the insurance laws of this state. (11) Separability. If any provision of this regulation is found to be invalid, the remainder of the regulation shall not be affected. (Print or Type) Full Name and Address of Company (Do Not Use Group Names). ____________________________________________________________ ____________________________________________________________________________________________________________________ In connection with the above-named company, I herewith make representations and supply information about myself as hereinafter set forth. (Attach addendum or separate sheet if space hereon is insufficient to answer any question fully.) IF ANSWER IS “NO” OR “NONE,” SO STATE. 1. Affiant’s Full Name (Initials Not Acceptable) __________________________________________________________________________ ________________________________________________________________________________________________________________ 2. a. Have you ever had your name changed? ___________________ If yes, give the reason for the change. ________________________ _______________________________________________________________________________________________________________ b. Other names used at any time. ____________________________________________________________________________________ ______________________________________________________________________________________________________________ 3. Affiant’s Social Security Number ____________________________________________________________________________________ 4. Date and Place of Birth ____________________________________________________________________________________________ 5. Affiant’s Business Address _________________________________________________________________________________________ Business Telephone _____________________________________________________________________________________________ 6. List your residences for the last ten (10) years starting with your current address, giving: DATE ADDRESS CITY AND STATE _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ 7. Education: Dates, Names, Locations and Degrees. College _________________________________________________________________________________________________________ _________________________________________________________________________________________________________ Graduate Studies _________________________________________________________________________________________________ __________________________________________________________________________________________________ Others __________________________________________________________________________________________________________ __________________________________________________________________________________________________________ 8. List memberships in Professional Societies and Associations.______________________________________________________________ ________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________ 9. Present or Proposed Position with the Applicant Company _________________________________________________________________ __________________________________________________________________________________________________________________ 10. List complete employment record (up to and including present jobs, positions, directorates or officerships) for the past twenty (20) years, giving: DATE EMPLOYER AND ADDRESS TITLE _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________ 11. Present employer may be contacted. Yes No (Circle One) Former employers may be contacted. Yes No (Circle One) 12. a. Have you ever been in a position which required a fidelity bond? _________________________________________________________ If any claims were made on the bond, give details. _____________________________________________________________________ b. Have you ever been denied an individual or position schedule fidelity bond or had a bond cancelled or revoked? __________________ If yes, give details. ______________________________________________________________________________________________ 13. List any professional, occupational, and vocational licenses issued by any public or governmental licensing agency or regulatory author- ity, which you presently hold or have held in the past (state date license issued, issuer of license, date terminated, reasons for termination). ________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________ 14. During the last ten (10) years, have you ever been refused a professional, occupational, or vocational license by any public or governmental licensing agency or regulatory authority, or has any such license held by you ever been suspended or revoked? ______________________ If yes, give details. ____________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________________ 15. List any insurers in which you control directly or indirectly or legally or beneficially own 10% or more of the outstanding stock (in vot- ing power). _______________________________________________________________________________________________________ ______________________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________________ If any of the stock is pledged or hypothecated in any way, give details. ______________________________________________________ ________________________________________________________________________________________________________________ 16. Will you or members of your immediate family subscribe to or own, beneficially or of record, shares of stock of the applicant insurance company or its affiliates?____________________________________________________________________________________________ If any of the shares or stock are pledged or hypothecated in any way, give details. _____________________________________________ _______________________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________________ AUTHORITY: sections 374.045 and 376.309 RSMo 2000, and 376.671, RSMo Supp. 2002.* This rule was previously filed as 4 CSR 190-13.300. Original rule filed Dec. 1, 1989, effective Aug. 1, 1990. Amended: Filed April 23, 1999, effective Nov. 30, 1999. Amended: Filed July 12, 2002, effective Jan. 30, 2003. Non-substantive change filed Sept. 11, 2019, published Oct. 31, 2019. *Original authority: 374.045, RSMo 1967, amended 1993, 1995; 376.309, RSMo 1963, amended 1969, 1983, 1992, 1993; and 376.671, RSMo 1979, amended 2002.