(a) Mandatory contract benefit and design requirements.

1. (1) Any modified guaranteed annuity contract delivered or issued for delivery in this state 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. (2) No modified guaranteed annuity contract calling for the payment of periodic stipulated payments shall be delivered or issued for delivery in this state unless it contains in substance the following provisions:

   1. (A)

(i) A provision that there shall be a grace period of thirty (30) days or one (1) month during which the contract shall remain in force and within which any payment due to the insurer other than the first may be made.

1. (ii) The contract may include a statement of the basis for determining the date as of which any such payment received during the grace period shall be applied to produce the values under the contract; and

   1. (B)

      1. (i) A provision that, at any time within one (1) year from the date of default, 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.
      2. (ii) Reinstatement may not occur if the cash value has been paid.
      3. (iii) The contract may include a statement of the basis for determining the date as of which the amount to cover such overdue payments and indebtedness shall be applied to produce the values under the contract.

2. (3)

   1. (A) 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.
   2. (B) When a contract is filed, it must be accompanied by a verified actuarial statement indicating the basis for the market-value adjustment formula and containing an assurance that the formula provides reasonable equity to both the contract holder and the insurance company.

(b) Nonforfeiture benefits.

1. (1) This section shall not apply to any of the following:

   1. (A) Reinsurance;
   2. (B) Group annuity contracts purchased in connection with one (1) or more retirement plans or deferred compensation plans established or maintained by or for one (1) or more employers (including partnerships or sole proprietorships), employee organizations, or any combination thereof, other than plans providing individual retirement accounts or individual retirement annuities under I.R.C. § 408, as now or hereafter amended;
   3. (C) Premium deposit fund;
   4. (D) Immediate annuity;
   5. (E) Deferred annuity contract after annuity payments have commenced;
   6. (F) Reversionary annuity; or
   7. (G) Any contract that is legally delivered or to be legally delivered outside this state by an agent or other representative of the company issuing the contract.

2. (2) No modified guaranteed annuity contract shall be delivered or issued for delivery in this state unless it contains in substance the following provisions:

   1. (A)

      1. (i) When premium payments cease under a contract, the insurer will grant a paid-up annuity benefit on a plan described in the contract that complies with subdivision (b)(5) of this section.
      2. (ii) The provision will include a statement of the mortality table, if any, and guaranteed or assumed interest rates used in calculating annuity payments; and

   2. (B)

      1. (i) 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 subdivision (b)(6) of this section.
      2. (ii) The contract may provide that the insurer may defer payment of such cash surrender benefit for a period of six (6) months after demand.

3. (3)

   1. (A) The minimum values, as specified in this section, 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 this subdivision (b)(3).

   2. (B) The unadjusted minimum nonforfeiture amount on any date prior to the annuity commencement date shall be an amount equal to the percentages of net considerations (as specified in subdivision (b)(4) of this section) increased by the interest credits defined in 23 CAR § 108-103 allocated to the percentage of net considerations, which amount shall be reduced to reflect the effect of subdivisions (b)(3)(B)(i) – (iv) of this section, below:

      1. (i) Any partial withdrawals from or partial surrender of the contract;
      2. (ii) The amount of any indebtedness on the contract, including interest due and accrued;
      3. (iii) An annual contract charge not less than zero and equal to the lesser of thirty dollars ($30.00) and two percent (2%) of the end of year contract value, less the amount of any annual contract charge deducted from any gross considerations credited to the contract during such contract year; and
      4. (iv) A transaction charge of ten dollars ($10.00) for each transfer to another investment division within the same contract.
   3. (C) Guaranteed interest credits in each year for any period of time for which interest credits are guaranteed shall be reasonably related to the average guaranteed interest credits over that period of time.
   4. (D) The minimum nonforfeiture amount shall be the unadjusted minimum nonforfeiture amount adjusted by the market-value adjustment formula contained in the contract.
   5. (E) The annual contract charge of thirty dollars ($30.00) and the transaction charge of ten dollars ($10.00) referenced will be adjusted to reflect changes in the Consumer Price Index in accordance with subdivision (b)(4) of this section.

4. (4)

   1. (A) The percentage of net considerations used to define the minimum nonforfeiture amount in subdivision (b)(3) of this section shall meet the requirements of this subdivision (b)(4).

   2. (B)

      1. (i) With respect to contracts providing for periodic considerations, the net considerations for a given contract year used to define the minimum nonforfeiture amount shall be:

(b) (b) Equal to the corresponding gross considerations credited to the contract during the contract year, less:

1. (1) (1) An annual contract charge of thirty dollars ($30.00);
2. (2) (2) A collection charge of one dollar and twenty-five cents ($1.25) per consideration credited to the contract during the contract year; and

3. (3) (3) Any charges for premium taxes.

   1. (ii) The percentages of net considerations shall be sixty-five percent (65%) for the first contract year and eighty-seven and one-half percent (87 1/2%) for the second and later contract years.

      1. (iii) Notwithstanding the provisions of subdivision (b)(4)(B)(ii) of this section, the percentage shall be sixty-five percent (65%) of the portion of the total net consideration for any renewal contract year that exceeds by not more than two (2) 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. (C)

      1. (i) With respect to contracts providing for a single consideration, the net consideration used to define the minimum nonforfeiture amount shall be the gross consideration, less:

(b) (b) Any charge for premium taxes.

1. (ii) The percentage of the net consideration shall be ninety percent (90%).

   1. (iii) The annual contract charge of thirty dollars ($30.00), the collection charge of one dollar and seventy-five cents ($1.75) per collection, and the single consideration contract charge of seventy-five dollars ($75.00) referred to above, will be adjusted to reflect changes in the Consumer Price Index in accordance with subdivision (b)(4)(D) of this section.

   2. (D)

      1. (i) The above contract charges shall be multiplied by the ratio of the Consumer Price Index for June of the calendar year preceding the date of filing, to the Consumer Price Index for June 1979.
      2. (ii) As used herein, the Consumer Price Index means such index for all urban consumers for all items as published by the Bureau of Labor Statistics or any successor agency.
      3. (iii) If publication of the Consumer Price Index ceases, or if such index otherwise becomes unavailable or is altered in such a way as to be unusable, the Insurance Commissioner will substitute an index the commissioner deems suitable.

2. (5)

   1. (A) 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.
   2. (B) Such present value shall be computed using the mortality table, if any, and the guaranteed or assumed interest rates used in calculating the annuity payments.

3. (6)

   1. (A) For modified guaranteed annuity contracts that 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.
   2. (B) The death benefit under such contracts shall be at least equal to the cash surrender benefit.
4. (7) Any modified guaranteed annuity 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 annuity commencement date shall include a statement in a prominent place in the contract that such benefits are not provided.

5. (8) Notwithstanding the requirements of this section, a modified guaranteed annuity contract may provide under the situations specified in subdivision (b)(8)(A) or (B) of this section 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 such payment be released of any further obligation under the contract if:

   1. (A) 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 ($20.00) per month; or
   2. (B) 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 the total considerations paid prior to such period, reduced to reflect any partial withdrawals from or partial surrenders of the contract, and the larger of the unadjusted minimum nonforfeiture amount and the minimum nonforfeiture amount is less than two thousand dollars ($2,000).

6. (9)

   1. (A) For any modified guaranteed 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 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.
   2. (B) Despite the provisions of subdivision (b)(2) of this section, additional benefits payable in the event of total and permanent disability, as reversionary annuity or deferred reversionary annuity benefits, or 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.

   3. (C) The inclusion of such additional benefits shall not be required in any paid-up benefits, unless the additional benefits separately would require minimum nonforfeiture amounts, paid-up annuity, cash surrender, and death benefits.

      1. (c) The application.
7. (1) An application used for a modified guaranteed annuity shall prominently set forth language substantially stating that amounts payable under the contract are subject to a market value adjustment prior to a date or dates specified in the contract.
8. (2) The statement shall be placed immediately above the signature line on the application, and the application shall be made a part of the policy.