Chapter 12. Grants And Annuities Societies of California Insurance Code >> Division 2. >> Part 2. >> Chapter 12.

The following organizations and persons may receive transfers of property, conditioned upon their agreement to pay an annuity to the transferor or the transferor's nominee, after obtaining from the commissioner a certificate of authority so to do:
  (a) Any charitable, religious, benevolent or educational organization, pecuniary profit not being its object or purpose, after being in active operation for at least 10 years; provided, nevertheless, that 10 years of active operation shall not be required in case of:
  (1) A nonprofit corporation organized and controlled by a hospital licensed by the State Department of Health Services as a general acute care hospital pursuant to Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code; and
  (2) An incorporated educational institution offering courses of instruction beyond high school, organized pursuant to Section 94757 of the Education Code, and which is, and for at least one year has been, qualified pursuant to Chapter 7 (commencing with Section 94700) of Part 59 of the Education Code to issue diplomas or degrees as defined in Sections 94724 and 94726 of that code;
  (b) Every organization or person maintaining homes for the aged for pecuniary profit. This section applies to organizations subject to and operating under Chapter 10 (commencing with Section 1770) of Division 2 of the Health and Safety Code.
  (c) This section shall become operative on January 1, 1997.

No person shall transact in this state the business described in this chapter without first procuring a certificate of authority from the commissioner for such purpose. Application for such certificate shall be made on a form prescribed by the commissioner accompanied by a filing fee of one thousand seven hundred seventy dollars ($1,770). Such certificate shall not be granted until the applicant conforms to the requirements of this chapter and the laws of this state prerequisite to its issue. After such issue the holder shall continue to comply with the requirements of this chapter and the laws of this state. Where a hearing is held under this section the proceedings shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1, Division 3, Title 2 of the Government Code, and the commissioner shall have all of the powers granted therein. Subject to the annual fee provisions herein, every certificate of authority issued or held under this chapter shall be for an indefinite term and, unless sooner revoked by the commissioner, shall terminate upon occurrence of any of the following:
  (a) Upon the holder's ceasing to exist as a separate entity.
  (b) Upon the winding up or dissolution, or expiration or forfeiture of the corporate existence of a corporate holder thereof.
  (c) Upon winding up or dissolution of a holder not a corporation.
  (d) In any event upon surrender by the holder of its certificate of authority and cancellation of the same by the commissioner. The commissioner shall not cancel a surrendered certificate of authority until he is satisfied by examination, or otherwise, that the former holder has discharged its annuity liabilities to residents of this state or satisfactorily reinsured the same. Notwithstanding the preceding provisions for a certificate of authority of indefinite term, each holder of a certificate of authority under this chapter shall owe and pay in advance to the commissioner in lawful money of the United States an annual fee of fifty-eight dollars ($58) on account of such certificate of authority until its final termination or revocation. Such fee shall be for annual periods commencing on July 1st of each year and ending on June 30th of each year and shall be due on each March 1st and shall be delinquent on and after each April 1st. Each holder of a certificate of authority shall also be subject to the payment in advance of the following fees, as appropriate:
  (1) One hundred eighteen dollars ($118) for each amended certificate of authority caused by a change of the name of the holder.
  (2) Eighty-nine dollars ($89) for the services and expenses of the commissioner in connection with the filing of amended articles by a holder.
  (3) Three hundred fifty-four dollars ($354) for all services and expenses of the commissioner in connection with the withdrawal of a holder of a certificate of authority under this chapter.

(a) Before granting a certificate of authority or amended certificate of authority as a grants and annuities society to any applicant, the commissioner shall consider the qualifications of the applicant with respect to the following subjects:
  (1) Minimum net worth and working capital.
  (2) Lawfulness and quality of investments.
  (3) Financial stability.
  (4) Reinsurance agreements.
  (5) Competency, character, and integrity of management.
  (6) Ownership and control.
  (7) Fairness and honesty of methods of doing business.
  (8) Risk to the public.
  (b) Upon consideration of all relevant qualifications, the commissioner shall issue a certificate of authority to an applicant, unless the commissioner finds that the applicant is materially deficient with respect to one or more of the subjects set forth in subdivision (a).

Upon granting to such organization or person a certificate of authority to receive such transfers, the commissioner shall require it to establish and maintain a reserve fund adequate to meet the future payments under its outstanding annuity contracts and in any event not less than an amount computed as follows:
  (a) In the case of annuities payable under agreements made prior to January 1, 1950, in accordance with the standard of valuation based upon McClintock's table of mortality among annuitants, with interest assumption at 3 1/2 percent per annum.
  (b) In the case of annuities payable under agreements made on and after January 1, 1950, in accordance with the standard of valuation based upon the 1937 Standard Annuity Table, with interest assumption at 2 1/2 percent per annum, or other table of mortality derived from recent annuity experience, with interest assumption not higher than is currently yielded on safe securities, as may be prescribed by the commissioner. For any failure on its part to establish and maintain such reserve fund, the commissioner shall revoke its certificate of authority.

(a) The funds and other property, together with interest and dividends thereon and proceeds therefrom, conditioned upon issuance of the certificate holder's contracts to pay annuities, shall be maintained under a separate trust agreement for reserves held for the benefit of California annuitants and shall be held legally and physically segregated from the other assets of the certificate holder. The amendments to this subdivision enacted during the 1993 portion of the 1993-94 Regular Session shall apply to any organization that is issued a new certificate of authority on or after January 1, 1994. Any grants and annuities society that holds a certificate of authority on January 1, 1994, and that is not in compliance with this subdivision as of that date, shall comply with these amendments by January 1, 1998.
  (b) Nothing in subdivision (a) shall prevent the certificate holder from withdrawing from time to time, pursuant to an appropriate resolution of its board of trustees, that amount or amounts as are determined, in a manner which is satisfactory to the commissioner, to be excess over and above its reserve required to be maintained under the provisions of Section 11521.
  (c) If the grants and annuities society will manage and direct investment of the reserve funds required under Section 11521, the California reserves may be held under a declaration of trust stating that the grants and annuities society will hold the funds in trust and invest funds or property held in trust in accordance with the requirements of this code. If a bank will manage or direct the investment of the California reserves fund, a trust agreement shall be executed with that institution that will act as a trustee.

(a) The reserve required by the table of commensurate values for each annuity contract issued must be invested in investments specified in Sections 1170 through 1182 except that a certificate holder may invest in investment companies registered under the federal Investment Company Act of 1940, and in securities, including interests in those investment companies, listed and traded on the New York Stock Exchange, the American Stock Exchange or regional stock exchanges or the National Market System of the Nasdaq Stock Market or successors to such exchanges or market having the same qualifications, to the extent of the lesser of net worth (assets over liabilities and reserves) of the certificate holder or 50 percent of these general investments. This section does not permit investment in options or commodity exchanges.
  (b) The certificate holder may invest in other investments as permitted by and subject to the written consent of the commissioner.

(a) Prior to admission each applicant shall file with the commissioner an accurate and complete financial statement consisting of a balance sheet and income and expense statement, showing the current condition of the applicant and sworn to by the officer of the applicant having the responsibility for preparing the statement.
  (b) If the applicant is already transacting a grants and annuities business in another state, an accurate and complete financial statement showing the condition of the present grants and annuities business, sworn to by the officer having the responsibility for preparing the statement, shall be submitted.
  (c) One hundred and twenty days after the end of their fiscal year, every certificate holder, except a certificate holder that also holds a certificate of authority pursuant to Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1, shall make and file with the commissioner an accurate and complete financial statement, consisting of a balance sheet and income and expense statement, showing the current condition of the certificate holder's grants and annuities operation on a form prescribed by the commissioner.

The commissioner may, in his discretion and after hearing, require the disposal of any investment made in violation of the provisions of this chapter; pending disposal pursuant to such order, no value shall be allowed for such investment in any financial statement or report required to be filed with the commissioner and purporting to show the financial condition of the owner thereof for the purpose of determining whether such owner is solvent or insolvent.

The commissioner may adopt reasonable rules and regulations as may be necessary to carry out the provisions of this chapter pursuant to the provisions of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. Pursuant to these provisions, the commissioner may also amend or repeal the rules and regulations.

Nothing contained in Section 11521, 11521.1, 11521.2, 11521.4, 11523.6, or paragraph (6) of subdivision (a) of Section 11523 shall apply to any grants and annuities certificate holder that also holds a certificate of authority pursuant to Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1. A grants and annuities certificate holder subject to this section shall display clearly and conspicuously, and in the type specified, the disclosure required by paragraph (7) of subdivision (a) of Section 11523 in all agreements issued under this chapter.

Every organization or person holding a certificate of authority to receive transfers under this chapter shall make and file with the commissioner information regarding each agreement entered into between the permit or certificate holder and the transferor. The information requested by the commissioner shall be provided in the number, form, and format, at the intervals, and by the methods prescribed by the commissioner. The organization or person shall pay a basic fee to the commissioner for the filing of the requested information. The basic fee as provided in this section shall be established by rules and regulations adopted by the commissioner pursuant to Section 11521.5 for information filed by the organization or person where information is filed regarding up to 10 agreements within any calendar quarter. Thereafter, within each calendar quarter, the fee for information filed regarding each agreement shall be as follows: 50 percent of the basic fee for information filed regarding 11 to 20 agreements filed; 20 percent of the basic fee for information filed regarding 21 to 30 agreements filed; 10 percent of the basic fee for information filed regarding 31 to 40 agreements filed; and 5 percent of the basic filing fee for information filed regarding 41 or more agreements. The fees as provided herein shall be paid with the filing of the information regarding the agreements by the organization or person.

(a) The annuity agreement shall show each of the following:
  (1) The value of the property transferred.
  (2) The amount of annuity agreed to be paid to the transferor or his nominee.
  (3) The manner in which, and the intervals at which, the annuity is to be paid.
  (4) The age, in years, at or nearest the date of the agreement, of the person during whose life the annuity is to be paid.
  (5) The effective date of the agreement.
  (6) The signature of each donor.
  (7) The following clause, in at least 12-point boldface type, located on the same page as and in the immediate proximity of the donor signature line: "Annuities are subject to regulation by the State of California. Payments under this agreement, however, are not protected or otherwise guaranteed by any government agency or the California Life and Health Insurance Guarantee Association.
  (b) Every organization or person holding a certificate of authority to receive transfers under this chapter shall annually certify to the commissioner that all agreements entered into during the time period covered by the certification show all of the information set forth in subdivision (a). The certification shall be in the number, form, and format, by the method, and at the time prescribed by the commissioner. The commissioner may from time to time as he or she deems necessary require that a copy of each agreement be submitted to the department.

Any person holding a certificate of authority under this chapter may reinsure its total liability under an annuity agreement (as defined in Section 11523) with an admitted insurer for a single premium. In such event, such certificate holder may take credit for such reinsurance in reduction of the amount of the reserve fund it is required to maintain under the provisions of Section 11521, subject to the following conditions:
  (a) Such certificate holder shall file with the commissioner a copy of the reinsurance contract specifying which annuity agreement previously filed pursuant to Section 11522 is thereby reinsured.
  (b) Such certificate holder shall enter into a written agreement with the annuitant and the reinsurer agreeing that if it should for any reason be unable to continue the making of the annuity payments required by its annuity agreement, the annuitant shall receive payments directly from the reinsurer and that such reinsurer shall be credited with all such direct payments in the accounts between it and such reinsurer.
  (c) Any commission granted by the reinsurer on the reinsurance shall be payable only to the certificate holder which shall pay no commission directly or on account of such reinsurance.

No grants and annuities society applying for admission to this state, or transacting in this state, the business described in this chapter shall transact or be authorized to transact a variable annuity business as described in Section 10506.

Except as prescribed in this chapter, such organization or person shall be otherwise exempt from the provisions of this code and other insurance laws of this state, except the provisions of Sections 730 to 736, inclusive, Sections 790 to 790.10, inclusive, Section 1011, Sections 1012 to 1044, and Sections 1056.5 to 1061. The cost and expense of examining such organization or person shall be paid as prescribed in Section 736.