KRS 304.15-365: Standard Nonforfeiture Law for Individual Deferred Annuities of 2005.

(1) This section shall be known as the "Standard Nonforfeiture Law for Individual

Deferred Annuities of 2005."

(2) (a) This section shall not apply to any reinsurance gr oup annuity purchased under

a retirement plan or plan of deferred compensation established or maintained

by an employer, including a partnership or sole proprietorship, or by an

employee organization, or by both, other than a plan providing individual

retirement accounts or individual retirement annuities under Section 408 of

the Internal Revenue Code, as now or hereafter amended, premium deposit

fund, variable annuity, investment annuity, immediate annuity, any deferred

annuity contract after annuity payme nts have commenced, or reversionary

annuity, nor to any contract which shall be delivered outside this state through

an agent or other representative of the insurer issuing the contract.

(b) However, to the extent that a variable annuity contract provides benefits that

do not, before the maturity date, vary in accordance with the investment

performance of any separate account or accounts maintained by the insurer as

to such contract, as provided for in KRS 304.15 -390, the contract shall

contain provisions t hat satisfy the requirements of this section and shall not

otherwise be subject to this section.

(3) (a) In the case of contracts issued on or after July 1, 2006, no contract of annuity,

except as provided in subsection (2) of this section, shall be delive red or

issued for delivery in this state unless it contains in substance the following

provisions, or corresponding provisions which in the opinion of the

commissioner are at least as favorable to the contract holder, upon cessation

of payment of considerations under the contract:

1. That upon cessation of payment of considerations under a contract, or

upon the written request of the contract owner, the insurer shall grant a

paid-up annuity benefit on a plan stipulated in the contract of such value

as is specified in subsections (8), (9), (10), (11), and (13) of this section;

2. If a contract provides for a lump sum settlement at maturity, or at any

other time, that upon surrender of the contract at or prior to the

commencement of any annuity payments, the insurer shall pay, in lieu of

any paid-up annuity benefit, a cash surrender benefit of such amount as

is specified in subsections (8), (9), (10), (11), and (13) of this section.

The insurer may reserve the right to defer the payment of this cash

surrender benefit for a period not to exceed six (6) months after demand

therefor with surrender of the contract after making written request and

receiving written approval of the commissioner. The request shall

address the necessity and equitability to all policyholders of the deferral;

3. A statement of the mortality table, if any, and interest rates used in

calculating any minimum paid -up annuity, cash surrender or death

benefits that are guaranteed under the contract, together with sufficient

information to determine the amounts of such benefits; and

4. A statement that any paid -up annuity, cash surrender or death benefits

that may be available under the contract are not less than the minimum

benefits required by any statute of the state in which the contract is

delivered and an explanation of the manner in which these benefits are

altered by the existence of any additional amounts credited by the

insurer to the contract, any indebtedness to the insurer on the contract, or

any prior withdrawals from or partial surrenders of the contract.

(b) Notwithstanding the requirements of this subsection, any deferred annuity

contract may provide that if no considerations have been received under a

contract for a period of two (2) full years and the portion of the paid -up

annuity benefit at maturity on the plan stipula ted in the contract arising from

considerations paid prior to that period would be less than twenty dollars

($20) monthly, the insurer may at its option terminate the contract by payment

in cash of the then -present value of such portion of the paid -up annu ity

benefit, calculated on the basis of the mortality table, if any, and interest rate

specified in the contract for determining the paid -up annuity benefit, and by

this payment shall be relieved of any further obligation under such contract.

(4) (a) The minimum values as specified in subsections (8), (9), (10), (11), and (13)

of this section of any paid -up annuity, cash surrender, or death benefits

available under an annuity contract shall be based upon minimum

nonforfeiture amounts as defined in this section.

(b) The minimum nonforfeiture amount at any time at or prior to the

commencement of any annuity payments shall be equal to an accumulation up

to that time at rates of interest as indicated in subsection (5) of this section of

the net considerations, a s defined in paragraph (c) of this subsection, paid

prior to that time, decreased by the sum of:

1. Any prior withdrawals from or partial surrenders of the contract

accumulated at a rate of interest as indicated in subsection (5) of this

section;

2. An annual contract charge of fifty dollars ($50) accumulated at rates of

interest as indicated in subsection (5) of this section; and

3. The amount of any indebtedness to the insurer on the contract, including

interest due and accrued.

(c) The net considerations for a given contract year used to define the minimum

nonforfeiture amount shall be an amount equal to eighty -seven and one -half

percent (87.5%) of gross considerations credited to the contract during that

contract year.

(5) The interest rate used in deter mining minimum nonforfeiture amounts shall be an

annual rate of interest determined as the lesser of three percent (3%) per annum and

the following, which shall be specified in the contract if the interest rate will be

reset:

(a) The five (5) year Constant Maturity Treasury Rate reported by the Federal

Reserve as of a date or average over a period rounded to the nearest one -

twentieth of one percent (0.05%), specified in the contract no longer than

fifteen (15) months prior to the contract issue date or rede termination date

under paragraph (d) of this subsection;

(b) Reduced by one hundred twenty-five (125) basis points;

(c) Where the resulting interest rate is not less than one percent (1%); and

(d) The interest rate shall apply for an initial period and may be redetermined for

additional periods. The redetermination date basis and period, if any, shall be

stated in the contract. The basis is the date or average over a specified period

that produces the value of the five (5) year Constant Maturity Treasury Ra te

to be used at each redetermination date.

(6) (a) During the period or term that a contract provides substantive participation in

an equity indexed benefit, it may increase the reduction described in

subsection (5)(b) of this section up to an additional one hundred (100) basis

points to reflect the value of the equity index benefit.

(b) The present value at the contract issue date and at each redetermination date

thereafter of the additional reduction shall not exceed the market value of the

benefit.

(c) The commissioner may require a demonstration that the present value of the

additional reduction does not exceed the market value of the benefit.

(d) Lacking such demonstration that is acceptable to the commissioner, the

commissioner may disallow or limit the additional reduction.

(7) The commissioner may promulgate administrative regulations in accordance with

KRS Chapter 13A that:

(a) Implement the provisions of subsection (6) of this section; and

(b) Provide for further adjustments to the calculation of m inimum nonforfeiture

amounts for:

1. Contracts that provide substantive participation in an equity index

benefit; and

2. Other contracts for which the commissioner determines adjustments are

justified.

(8) (a) Any paid-up annuity benefit available under a contract shall be such that its

present value on the date annuity payments are to commence is at least equal

to the minimum nonforfeiture amount on that date.

(b) This present value shall be computed using the mortality table, if any, and the

interest rates specified in the contract for determining the minimum paid -up

annuity benefits guaranteed in the contract.

(9) (a) For contracts which provide cash surrender benefits, the cash surrender

benefits available prior to maturity shall not be less than the pre sent value as

of the date of surrender of that portion of the maturity value of the paid -up

annuity benefit which would be provided under the contract at maturity

arising from considerations paid prior to the time of cash surrender reduced by

the amount ap propriate to reflect any prior withdrawals from or partial

surrenders of the contract, the present value being calculated on the basis of

an interest rate not more than one percent (1%) higher than the interest rate

specified in the contract for accumulati ng the net considerations to determine

the maturity value, decreased by the amount of any indebtedness to the insurer

on the contract, including interest due and accrued, and increased by any

existing additional amounts credited by the insurer to the contract.

(b) In no event shall any cash surrender benefit be less than the minimum

nonforfeiture amount at that time.

(c) The death benefit under the contracts shall be at least equal to the cash

surrender benefit.

(10) (a) For contracts which do not provide cash surrender benefits, the present value

of any paid-up annuity benefit available as a nonforfeiture option at any ti me

prior to maturity shall not be less than the present value of that portion of the

maturity value of the paid -up annuity benefit provided under the contract

arising from considerations paid prior to the time the contract is surrendered

in exchange for, o r changed to, a deferred paid -up annuity, the present value

being calculated for the period prior to the maturity date on the basis of the

interest rate specified in the contract for accumulating the net considerations

to determine the maturity value, and increased by any existing additional

amounts credited by the insurer to the contract.

(b) For contracts which do not provide any death benefits prior to the

commencement of any annuity payments, the present values shall be

calculated on the basis of the in terest rate and the mortality table specified in

the contract for determining the maturity value of the paid-up annuity benefit.

(c) However, in no event shall the present value of a paid -up annuity benefit be

less than the minimum nonforfeiture amount at that time.

(11) For the purpose of determining the benefits calculated under subsections (9) and

(10) of this section, in the case of annuity contracts under which an election may be

made to have annuity payments commence at optional maturity dates, the ma turity

date shall be deemed to be the latest date for which election shall be permitted by

the contract, but shall not be deemed to be later than the anniversary of the contract

next following the annuitant's seventieth birthday or the tenth anniversary of the

contract, whichever is later.

(12) Any 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

commencement of any annuity payments shall include a stat ement in a prominent

place in the contract that such benefits are not provided.

(13) Any paid-up annuity, cash surrender or death benefits available at any time, other

than on the contract anniversary under any contract with fixed scheduled

considerations, shall be calculated with allowance for the lapse of time and the

payment of any scheduled considerations beyond the beginning of the contract year

in which cessation of payment of considerations under the contract occurs.

(14) (a) For any contract which p rovides, 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.

(b) Notwithstanding the provisions of subsections (8), (9), (10), (11), and (13) of

this section, additional benefits payable:

1. In the event of total and permanent disability;

2. As reversionary annuity or deferred reversionary annuity benefits; or

3. As other poli cy 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. The inclusion of these additional benefits shall not be required in any

paid-up benefits, unless these additional benefits separately would require

minimum nonforfeiture amounts, paid -up annuity, cash surrender and death

benefits.

(15) Any optional maturity date offered for an annuity contract issued pursuant to this

section shall:

(a) Not impose a surrender charge that is longer than ten (10) years beyond the

optional maturity date agreed to by the annuitant and the insurer; and

(b) Be offered to an annuitant before the annuitant attains seventy (70) years of

age.

(16) (a) After August 1, 2005, any insurer may file with the commissioner a written

notice of its election to apply the provisions of this section on a contract -form

by contract -form basis to annuity contracts issued by the insurer during the

period from the date of the election through June 30, 2006.

(b) Insurers shall apply the provisions of this section to annuity contracts issued

on or after July 1, 2006.