Section 1.
Purpose
A. The purpose of this regulation is
to provide standards for the disclosure of certain minimum information about
annuity contracts to protect consumers and foster consumer education. The
regulation specifies the minimum information which must be disclosed and the
method for disclosing it in connection with the sale of annuity contracts. The
goal of this regulation is to ensure that purchasers of annuity contracts
understand certain basic features of annuity contracts.
B. The regulation does not prohibit the use
of additional material which is not in violation of this regulation or any
other South Carolina statute or regulation.
Section 2. Scope
This regulation applies to all group and individual annuity
contracts and certificates except:
A.
Registered or non-registered variable annuities or other registered
products;
B. Immediate and deferred
annuities that contain no non-guaranteed elements;
C.
(1)
Annuities used to fund:
(a) An employee
pension plan which is covered by the Employee Retirement Income Security Act
(ERISA);
(b) A plan described by
Sections 401(a), 401(k) or 40
3(b) of the Internal Revenue Code, where
the plan, for purposes of ERISA, is established or maintained by an
employer;
(c) A governmental or
church plan defined in Section 414 of the Internal Revenue Code or a deferred
compensation plan of a state or local government or a tax exempt organization
under Section 457 of the Internal Revenue Code; or
(d) A nonqualified deferred compensation
arrangement established or maintained by an employer or plan sponsor;
(2) Notwithstanding Paragraph (1),
the regulation shall apply to annuities used to fund a plan or arrangement that
is funded solely by contributions an employee elects to make whether on a
pre-tax or aftertax basis, and where the insurance company has been notified
that plan participants may choose from among two (2) or more fixed annuity
providers and there is a direct solicitation of an individual employee by a
producer for the purchase of an annuity contract. As used in this subsection,
direct solicitation shall not include any meeting held by a producer solely for
the purpose of educating or enrolling employees in the plan or
arrangement;
D.
Structured settlement annuities;
E.
Charitable gift annuities; and
F.
Funding agreements.
Section
3. Definitions
For the purposes of this regulation:
A. "Buyer's Guide" means the current Buyer's
Guide to Fixed Deferred Annuities, including any appendices thereto, adopted by
the National Association of Insurance Commissioners (NAIC) or language approved
by the Director of the Department of Insurance.
B. "Charitable gift annuity" means a transfer
of cash or other property by a donor to a charitable organization in return for
an annuity payable over one or two lives, under which the actuarial value of
the annuity is less than the value of the cash or other property transferred
and the difference in value constitutes a charitable deduction for federal tax
purposes, but does not include a charitable remainder trust or a charitable
lead trust or other similar arrangement where the charitable organization does
not issue an annuity and incur a financial obligation to guarantee annuity
payments.
C. "Contract owner" means
the owner named in the annuity contract or certificate holder in the case of a
group annuity contract.
D.
"Determinable elements" means elements that are derived from processes or
methods that are guaranteed at issue and not subject to company discretion, but
where the values or amounts cannot be determined until some point after issue.
These elements include the premiums, credited interest rates (including any
bonus), benefits, values, non-interest based credits, charges or elements of
formulas used to determine any of these. These elements may be described as
guaranteed but not determined at issue. An element is considered determinable
if it was calculated from underlying determinable elements only, or from both
determinable and guaranteed elements.
E. "Funding agreement" means an agreement for
an insurer to accept and accumulate funds and to make one or more payments at
future dates in amounts that are not based on mortality or morbidity
contingencies.
F. "Generic name"
means a short title descriptive of the annuity contract being applied for or
illustrated such as "single premium deferred annuity."
G. "Guaranteed elements" means the premiums,
credited interest rates (including any bonus), benefits, values, non-interest
based credits, charges or elements of formulas used to determine any of these,
that are guaranteed and determined at issue. An element is considered
guaranteed if all of the underlying elements that go into its calculation are
guaranteed.
H. "Non-guaranteed
elements" means the premiums, credited interest rates (including any bonus),
benefits, values, non-interest based credits, charges or elements of formulas
used to determine any of these, that are subject to company discretion and are
not guaranteed at issue. An element is considered non-guaranteed if any of the
underlying non-guaranteed elements are used in its calculation.
I. "Structured settlement annuity" means a
"qualified funding asset" as defined in Section 130(d) of the Internal Revenue
Code or an annuity that would be a qualified funding asset under Section 130(d)
of the Internal Revenue Code but for the fact that it is not owned by an
assignee under a qualified assignment.
Section 4. Standards for the Disclosure
Document and Buyer's Guide
A.
(1) Where the application for an annuity
contract is taken in a face-to-face meeting, the applicant shall at or before
the time of application be given both the disclosure document described in
Subsection B and a copy of the Buyer's Guide.
(2) Where the application for an annuity
contract is taken by means other than in a face-to-face meeting, the applicant
shall be sent both the disclosure document and the Buyer's Guide no later than
five (
5)
business days after the completed application is received by the insurer.
(a) With respect to an application received
as a result of a direct solicitation through the mail:
(i) Providing a Buyer's Guide in a mailing
inviting prospective applicants to apply for an annuity contract shall be
deemed to satisfy the requirement that the Buyer's Guide be provided no later
than five (5) business days after receipt of the application.
(ii) Providing a disclosure document in a
mailing inviting a prospective applicant to apply for an annuity contract shall
be deemed to satisfy the requirement that the disclosure document be provided
no later than five (5) business days after receipt of the
application.
(b) With
respect to an application received via the Internet:
(i) Taking reasonable steps to make the
Buyer's Guide available for viewing and printing on the insurer's website shall
be deemed to satisfy the requirement that the Buyer's Guide be provided no
later than five (5) business days after receipt of the application.
(ii) Taking reasonable steps to make the
disclosure document available for viewing and printing on the insurer's website
shall be deemed to satisfy the requirement that the disclosure document be
provided no later than five (5) business days after receipt of the
application.
(c) A
solicitation for an annuity contract provided in other than a face-to-face
meeting shall include a statement that the proposed applicant may contact the
Department for a free Buyer's Guide. In lieu of the foregoing statement, an
insurer may include a statement that the prospective applicant may contact the
insurer for a free Buyer's Guide.
(3) Where the Buyer's Guide and disclosure
document are not provided at or before the time of application, a free look
period of no less than fifteen (15) days shall be provided for the applicant to
return the annuity contract without penalty. This free look period shall run
concurrently with any other free look period provided under state law or
regulation.
B. At a
minimum, the following information shall be included in the disclosure document
required to be provided under this regulation:
(1) The generic name of the contract, the
company product name, if different, and form number, and the fact that it is an
annuity.
(2) The insurer's name and
address.
(3) A description of the
contract and its benefits, emphasizing its long-term nature, including the
following where appropriate:
(a) The
guaranteed, non-guaranteed and determinable elements of the contract, and their
limitations, if any, and an explanation of how they operate;
(b) An explanation of the initial crediting
rate, specifying any bonus or introductory portion, the duration of the rate
and the fact that rates may change from time to time and are not
guaranteed;
(c) Periodic income
options both on a guaranteed and non-guaranteed basis;
(d) Any value reductions caused by
withdrawals from or surrender of the contract;
(e) How values in the contract can be
accessed;
(f) The death benefit, if
available and how it will be calculated;
(g) A summary of the federal tax status of
the contract and any penalties applicable on withdrawal of values from the
contract; and
(h) The impact of any
rider, such as a long-term care rider.
(4) The specific dollar amount or percentage
charges and fees with an explanation of how they apply.
(5) Information about the current guaranteed
rate for new contracts that contains a clear notice that the rate is subject to
change.
C. Insurers
shall define terms used in the disclosure statement in language that
facilitates the understanding by a typical person within the segment of the
public to which the disclosure statement is directed.
Section 5. Report to Contract Owners
For annuities in the payout period with changes in non-guaranteed
elements and for the accumulation period of a deferred annuity, the insurer
shall provide each contract owner with a report, at least annually, on the
status of the contract that contains at least the following information:
A. The beginning and end date of the current
report period;
B. The accumulation
and cash surrender value, if any, at the end of the previous report period and
at the end of the current report period;
C. The total amounts, if any, that have been
credited, charged to the contract value or paid during the current report
period; and
D. The amount of
outstanding loans, if any, as of the end of the current report
period.
Section 6.
Penalties
In addition to any other penalties provided by the laws of this
state, an insurer or producer that violates a requirement of this regulation
shall be guilty of a violation of South Carolina Code Ann. Section
38-57-10
et seq.
Section 7.
Severability
If any section or portion of a section of this regulation, or its
applicability to any person or circumstances, is held invalid by a court, the
remainder of this regulation, or the applicability of its provisions to other
persons, shall not be affected.
Section
8. Effective Date
This regulation shall become effective six months following final
publication in the State Register and shall apply to contracts sold on or after
the effective date.