INSURANCE DEPARTMENT [31 PA. CODE CH. 86] Premium and Retirement Deposit Funds [30 Pa.B. 886] The Insurance Department (Department) proposes to amend Chapter 86 (relating to premium and retirement deposit funds), to read as set forth in Annex A. This chapter is being proposed under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412) and sections 202 and 354 of The Insurance Company Law of 1921 (40 P. S. §§ 382 and 477b).
Purpose
The purpose of the amendments to Chapter 86 is to update the chapter so that it recognizes and makes provisions for the life insurance and annuity products which are currently being sold in this Commonwealth. When the chapter was adopted, life insurance policies and annuity contracts generally provided only for the payment of fixed premium amounts. In the current Commonwealth marketplace, both fixed premium and flexible premium policies and contracts are marketed and sold.
The proposed amendments to Chapter 86 establish a distinction between fixed premium policies and contracts, and flexible premium policies and contracts. The amendments provide for deposit limits that are applicable to monies held in premium deposit funds and retirement deposit funds of both fixed premium and flexible premium life insurance policies and annuity contracts.
Explanation of Regulatory Requirements
The following is a description of the changes contained in the proposed rulemaking.
Section 86.3 (relating to limit on amounts) provides for limits on the amount of money that a company or fraternal benefit society may hold under a premium deposit fund or retirement deposit fund for a life insurance policy or annuity contract. The proposed rulemaking amends this section to provide for diversity in treatment of fixed premium policies and contracts, and flexible premium policies and contracts. Further, this section, as amended, would establish the applicable deposit limits under fixed premium and flexible premium policies and contracts.
Section 86.4 (relating to interest rates) is being modified to make the section more understandable.
Minor editorial changes were made to § 86.9 (relating to deferment of and charges against withdrawal).
External Comments
In developing the proposed rulemaking, comments were solicited from the Insurance Federation of Pennsylvania, Inc. Comments from this organization were taken into consideration in preparing the proposed amendments to Chapter 86.
Affected Parties
This proposed rulemaking will apply to life insurance companies and fraternal benefit societies marketing life insurance policies and annuity contracts in this Commonwealth.
Fiscal Impact
State Government
There is anticipated to be no increase in cost to the Department resulting from the recognition within the modified chapter of flexible premium life insurance and annuity products. The establishment of limits for each type of premium payment contract should not substantially increase compliance monitoring by the Department.
General Public
There will be no adverse fiscal impact on consumers who purchase life insurance policies and annuity contracts and place money in the premium deposit funds or retirement deposit funds of the policies or contracts.
Political Subdivisions
The proposed rulemaking will have no fiscal impact on political subdivisions.
Private Sector
It is anticipated that the proposed rulemaking will have a fiscal impact on insurance companies and fraternal benefit societies to the extent that there will be, in contrast to prior practice, a clear limit on the amount of money that may be held by insurers under a premium deposit fund of a flexible premium life insurance policy. The Department believes it unlikely that this new limit will result in insurers collecting substantially less money in connection with life insurance policies.
Paperwork
The adoption of this proposed rulemaking will not impose additional paperwork on the Department or the insurance industry. Although the rulemaking imposes additional deposit limits on premium deposit funds and retirement deposit funds, it does not impose additional requirements resulting in additional paperwork.
Effectiveness/Sunset Date
The proposed rulemaking will become effective upon final adoption and publication in the Pennsylvania Bulletin. No sunset date has been assigned.
Contact Person
Questions or comments concerning this proposed rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, 1326 Strawberry Square, Harrisburg, PA 17120, within 30 days of the publication of this proposed rulemaking in the Pennsylvania Bulletin. Questions or comments may also be E-mailed to psalvato@ins.state.pa.us or faxed to (717) 772-1969 or (717) 705-3873.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on February 9, 2000, the Department submitted a copy of this proposed rulemaking to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the Senate Banking and Insurance Committee and the House Insurance Committee. In addition to the submitted proposed rulemaking, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the agency in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of that material is available to the public upon request.
If IRRC has objections to any portion of the proposed rulemaking, it will notify the agency within 10 days after the close of the Committees' review period. The notification shall specify the regulatory review criteria that have not been met by that portion. The Regulatory Review Act specifies detailed procedures for the agency, the Governor and the General Assembly to review these objections before publication of the final-form regulations.
M. DIANE KOKEN,
Insurance CommissionerFiscal Note: 11-188. No fiscal impact; (8) recommends adoption.
Annex A TITLE 31. INSURANCE PART VI. LIFE INSURANCE CHAPTER 86. PREMIUM AND RETIREMENT DEPOSIT FUNDS § 86.2. Purpose.
[In transacting business, life insurance companies and fraternal benefit societies have been permitted, for the convenience of policyholders and contractholders, to accept funds for paying premiums or considerations falling due in the future. In recent years there has been increasing use of the deposits to provide a fund for purposes other than prepayment of premiums or considerations, the overuse of which may result in misuse of the underwriting powers authorized to life insurance companies. To prevent further overuse of these accounts, the Insurance Department requires stock and mutual life companies and fraternal benefit societies to accept deposits under an individual life insurance policy or an individual annuity contract only under the conditions and limitations set forth in this chapter.] In transacting business, life insurance companies and fraternal benefit societies, for the convenience of policyholders and contractholders, accept funds for paying premiums or considerations falling due in the future. This chapter allows life insurance companies and fraternal benefit societies to accept deposits under an individual life insurance policy or an individual annuity contract only under the conditions and limitations set forth in this chapter. When this chapter was adopted, life insurance policies and annuity contracts generally provided for the payment of fixed premium amounts. Therefore, the chapter was designed to apply to fixed premium policies and contracts. In the current Pennsylvania marketplace, both fixed premium and flexible premium policies and contracts are marketed and sold and this chapter recognizes a distinction between fixed premium policies and contracts, and flexible premium policies and contracts and establishes deposit limits which are applicable to monies held in premium deposit funds and retirement funds of both types of premium payment policies and contracts.
§ 86.3. Limit on fund amounts.
(a) The maximum amount which may be held by the insurer for payment of future premiums, according to provisions in a fixed premium life insurance policy, contract, rider or endorsement, is the present value of gross premiums payable in the future, discounted at the interest rate or rates guaranteed in the policy, contract, rider or endorsement.
(b) The maximum amount which may be held by the insurer for payment of future premiums, according to provisions in a flexible premium life insurance policy, contract, rider or endorsement, is the present value of the premium payments necessary to maintain the policy or contract in force to the maturity date, based on guaranteed charges and credits.
(c) The maximum amount which may be held by the insurer for payment of future annuity considerations, according to provisions in [policy,] a fixed premium annuity contract, rider or endorsement, is the present value of gross considerations payable in the future under the annuity contract, rider or endorsement, discounted at the interest rate or rates guaranteed.
[(c)] (d) The maximum amount which may be held by the insurer in a retirement deposit fund, established according to provisions in [policy,] a fixed premium life insurance policy or fixed premium annuity contract, rider or endorsement, is the sum of the gross premiums or gross considerations payable under the base life insurance policy or base annuity contract.
(e) The amount which may be held by the insurer in a retirement deposit fund, established according to provisions in a flexible premium life insurance policy, contract, rider or endorsement, is not subject to any maximum or other limit. The amounts held in a retirement deposit fund are subject to the requirements and provisions of section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1).
(f) The amount which may be held by the insurer in a premium deposit fund or a retirement deposit fund, established according to provisions in a flexible premium annuity contract, rider or endorsement, is not subject to any maximum or other limit. The amounts held in a retirement deposit fund are subject to section 410C of The Insurance Company Law of 1921 (40 P. S. § 510b) relating to standard nonforfeiture law for individual deferred annuities.
§ 86.4. Interest rates.
The interest rate or rates guaranteed to be paid on the amount held in a premium deposit fund or a retirement deposit fund shall be clearly stated in the policy, contract, rider or endorsement. [The language] Language which tends to invite misrepresentation[, for example, at least 6%,] is prohibited.
§ 86.10. Projection of results and report of fund balance.
If sales promotion literature illustrates the projected results of the retirement deposit fund, the guaranteed interest rate or rates shall be used [irrespective] regardless of whether or not projected results are also shown on the basis of the rate currently being paid or some lesser rate. The insurer shall furnish each owner of a retirement deposit fund with a written report on the accumulated balance of the fund at least once a year.
[Pa.B. Doc. No. 00-288. Filed for public inspection February 18, 2000, 9:00 a.m.]
