DEPARTMENT OF BANKING AND INSURANCE
DIVISION OF INSURANCE
Standards for Individual Life Insurance Policy Forms; Individual Annuity Contract Form Standards; Standards for Contracts on a Variable Basis
Adopted Amendments: N.J.A.C. 11:4-41.3 and 41.10, 43.3 and 43.5, 44.3 and 44.4
Proposed: July 2, 2001 at 33 N.J.R. 2265(a)
Adopted: October 12, 2001, by Donald Bryan, Acting Commissioner for Insurance, Department of Banking and Insurance.
Filed: October 15, 2001 as R.2001 d. 410, with substantive changes not requiring additional public notice or comment (see N.J.A.C. 1:30-6.3).
Authority: N.J.S.A. 17:1-8.1, 17:1-15e, 17B:25-18, 17B:25-18.1 and 17B:25-18.2.
Effective Date: November 5, 2001
Expiration Date: November 30, 2005.
Summary of Public Comment and Agency Response:
The Department received two comments from the American Council of Life Insurers (ACLI) and Prudential Insurance Company of America.
COMMENT: The commenters objected to proposed N.J.A.C. 11:4-41.3(b)13 and 14 (relating to individual life forms) and N.J.A.C. 11:4-43.3(f) and (g) (relating to individual annuity forms), which permit insurers to unilaterally amend or modify their forms to satisfy any applicable law, but require that a policy or contract owner be permitted to refuse any such change unless noncompliance would cause the contract to be null and void. One commenter recommended that the provisions be amended to eliminate the ability of an owner to refuse such changes. The commenter stated that annuity products in particular are vulnerable to tax law changes that may not cause the policy or contract to be null and void (for example, raising the permissible IRA contribution limit), and it would be very costly for insurers to administer a separate system for those annuity owners who opt out.
The second commenter stated that, typically, Federal tax law changes would not void a policy or contract, but would require that the policy or contract be amended to remain in compliance. Failure to amend the policy or contract would likely deprive the policyholder of a tax qualification. The commenter suggested adding "or fail to comply with a State or Federal law" at the end of these provisions.
RESPONSE: The Department does not believe that any changes should be made to an individual life or annuity contract without the agreement of both parties to the contract, except changes that would cause the contract to be null and void or fail to comply with State or Federal law. Otherwise, insurers could unilaterally amend basic benefits and features of the original contract without the knowledge or approval of the policyholder.
The Department agrees with the second commenter, and is revising N.J.A.C. 11:4-41.3(b)13 and 43.3(f) to include the commenter's suggested language.
COMMENT: One comment addressed proposed N.J.A.C. 11:4-43.5(b), which would require that any annuity purporting to be a "flexible premium annuity" allow the owner to pay premiums for at least five years. The commenter stated that this proposed provision would appear to prevent insurers from issuing flexible premium annuities to investors nearing the maximum age on which annuity payments must begin. For example, an insurer would not be permitted to issue such an annuity to an 87-year old owner, where the maximum age on which annuity payments must begin is 90. The commenter stated that if an annuity otherwise qualifies under the proposed definition of "flexible premium annuity," the annuity should not be prevented from using that term under the scenario described.
RESPONSE: The Department did not intend to prohibit companies from selling flexible premium annuities that require annuitization at a fixed age to persons who are less than five years from that fixed age. Accordingly, the Department is adding language at N.J.A.C. 11:4-43.5(b) to reflect the Department's intent.
COMMENT: One commenter stated that proposed N.J.A.C. 11:4-44.3(c), which permits insurers to take into consideration the performance of the underlying separate account in determining an appropriate refund amount following a free look period and cancellation of an individual life insurance contract on a variable basis, should also apply to variable annuities because they also have a separate account.
RESPONSE: The Department has no statutory authority to regulate free review provisions for individual annuity contracts, variable or otherwise. Accordingly, the Department is unable to accept the commenter's suggestion.
Federal Standards Statement
A Federal standards analysis is not required because these adopted amendments are not subject to any Federal standards or requirements.
Full text of the adoption follows (additions to proposal indicated in boldface with asterisks *thus*; deletions from proposal indicated in brackets with asterisks *[thus]*):
11:4-41.3 General standards
(a) (No change.)
(b) The following approval standards shall apply to all individual life insurance forms:
1. – 8. (No change.)
9. All forms shall include a provision which sets forth the premiums payable at all durations in order to maintain the policy in force.
i. – vii. (No change from proposal.)
viii. Account value policies kept in force by a policy value exceeding zero shall be permitted to contain a minimum guarantee provision. Account value policies which use the account value less surrender charge to determine lapse shall also be permitted to contain a minimum premium lest provision. The following requirements shall apply to minimum guarantee provisions and minimum premium test provisions:
(1) (No change.)
(2) (No change from proposal.)
(3) – (6) (No change.)
10. – 12. (No change.)
13. The form may contain language that permits the insurer unilaterally to amend or modify the form to satisfy any applicable law. However, the owner shall be permitted to refuse any such change unless noncompliance would cause the contract to be null and void *or fail to comply with New Jersey or Federal law*.
14. (No change from proposal.)
11:4-43.3 General requirements and prohibitions
(a) – (e) ( No change from proposal.)
(f) The form may contain language that permits the insurer unilaterally to amend or modify the form to satisfy any applicable law. However, the owner shall be permitted to refuse any such change unless noncompliance would cause the contract to be null and void *or fail to comply with a New Jersey or Federal law*.
(g) (No change from proposal.)
11:4-43.5 Individual deferred annuities
(a) (No change from proposal.)
(b) An annuity form shall only be identified as a flexible premium annuity and use the corresponding formula for the derivation of the minimum nonforfeiture amount for a contract providing flexible considerations set forth at N.J.S.A. 17B:25-20g(1) if the owner is permitted to pay premiums for a period of no less than five years. *Notwithstanding this requirement, insurers may issue individual flexible premium deferred annuities that require annuitization at a fixed age to persons who are less than five years from such fixed age.* Any annuity contract providing flexible premiums for less than five years shall use the formula for derivation of the minimum nonforfeiture amount for a contract providing a single consideration set forth at N.J.S.A. 17B:25-20g(3).
(c) – (g) (No change from proposal.)