(a) This section does not apply to any reinsurance, group 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 26 U.S.C. 408 (Internal Revenue Code), as amended, premium deposit fund, variable annuity, investment annuity, immediate annuity, any deferred annuity contract after annuity payments have commenced, or reversionary annuity, nor to any contract that shall be delivered outside this state through an agent or other representative of the company issuing the contract.

(b) In the case of contracts issued on or after the operative date of this section as defined in (k) of this section, no contract of annuity, except as stated in (a) of this section, may be delivered or issued for delivery in this state unless it contains in substance the following provisions, or corresponding provisions that, in the opinion of the director, 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 holder, the company will grant a paid-up annuity benefit on a plan stipulated in the contract of the value specified in (d) - (g) and (i) 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 before the commencement of any annuity payments, the company will pay, in lieu of any paid-up annuity benefit, a cash surrender benefit of the amount specified in (d), (e), (g) and (i) of this section; the company may reserve the right to defer the payment of that cash surrender benefit for a period not to exceed six months after demand for the payment with surrender of the contract after making a written request that addresses the necessity and equitableness to all contract holders of the deferral and after receiving written approval by the director; (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 those benefits; (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 those benefits are altered by the existence of any additional amounts credited by the company to the contract, any indebtedness to the company on the contract, or any prior withdrawals from or partial surrenders of the contract. 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 full years and the portion of the paid-up annuity benefit at maturity on the plan stipulated in the contract arising from considerations paid before that period would be less than $20 monthly, the company may, at its option, terminate the contract by payment in cash of the then present value of the portion of the paid-up annuity 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 that payment shall be relieved of any further obligation under the contract.

(c) The minimum values as specified in (d) - (g) and (i) 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:

(1) The minimum nonforfeiture amount at any time at or before the commencement of any annuity payments shall be equal to an accumulation up to that time at a rate of interest established under (2) of this subsection of the net considerations as defined in this paragraph paid before that time, decreased by the sum of (A) any prior withdrawals from or partial surrenders of the contract accumulated at a rate of interest established under (2) of this subsection; (B) the amount of any indebtedness to the company on the contract, including interest due and accrued; (C) an annual contract charge of $50, accumulated at a rate of interest established under (2) of this subsection; and (D) any premium tax paid by the company for the contract, accumulated at a rate of interest established under (2) of this subsection. The net considerations for a given contract year used to define the minimum nonforfeiture amount shall be an amount equal to 871/2 percent of the corresponding gross considerations credited to the contract during that contract year.

(2) The interest rate used in determining minimum nonforfeiture amounts shall be an annual rate of interest determined as the lesser of three percent a year or the following, which shall be specified in the contract if the interest rate will be reset: (A) the five-year constant maturity treasury rate reported by the federal reserve as of a date, or average over a period, rounded to the nearest 1/ 20 of one percent, specified in the contract not more than 15 months before the contract issue date or redetermination date under (D) of this paragraph; (B) reduced by 125 basis points; (C) where the resulting interest rate is not less than one percent; and (D) the interest rate must apply for an initial period and may be redetermined for additional periods; the redetermination date, basis, and period, if any, must be stated in the contract; the basis is the date or average over a specified period that produces the value of the five-year constant maturity treasury rate to be used at each redetermination date.

(3) During the period or term that a contract provides substantive participation in an equity indexed benefit, the contract may increase the reduction described in (2)(B) of this subsection by up to an additional 100 basis points to reflect the value of the equity index benefit. The present value at the contract issue date, and at each following redetermination date, of the additional reduction may not exceed the market value of the benefit. The director may require a demonstration of the present value of the additional reduction and may disallow or limit the additional reduction if the demonstration does not prove that the present value of the additional reduction does not exceed the market value of the benefit.

(4) The director may by regulation provide for further adjustments to the calculation of minimum nonforfeiture amounts for contracts that provide substantive participation in an equity index benefit or for other contracts that the director determines require adjustment. An adjustment to the calculation of minimum nonforfeiture amounts authorized under this subsection may not result in an interest rate of less than one percent.

(d) 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. Such present value shall be computed using the mortality table, if any, and the interest rate specified in the contract for determining the minimum paid-up annuity benefits guaranteed in the contract.

(e) For contracts that provide cash surrender benefits, the cash surrender benefits available before maturity may not be less than the present value as of the date of surrender of that portion of the maturity value of the paid-up annuity benefit that would be provided under the contract at maturity arising from considerations paid before the time of cash surrender reduced by the amount appropriate to reflect any prior withdrawals from or partial surrenders of the contract. The present value shall be calculated on the basis of an interest rate not more than one percent higher than the interest rate specified in the contract for accumulating considerations to determine the maturity value, unless a higher rate is approved by the director under AS 21.42.120, decreased by the amount of any indebtedness to the company on the contract, including interest due and accrued, and increased by any existing additional amounts credited by the company to the contract. In no event may any cash surrender benefit be less than the minimum nonforfeiture amount at that time. The death benefit under those contracts shall be at least equal to the cash surrender benefit.

(f) 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 time before maturity may 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 before the time the contract is surrendered in exchange for, or changed to, a deferred paid-up annuity. The present value shall be calculated for the period before 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 company to the contract. For contracts which do not provide any death benefits before the commencement of any annuity payments, the present values shall be calculated on the basis of the interest rate and the mortality table specified in the contract for determining the maturity value of the paid-up annuity benefit. However, in no event may the present value of a paid-up annuity benefit be less than the minimum nonforfeiture amount at that time.

(g) For the purpose of determining the benefits calculated under (e) and (f) of this section,

(1) the maturity date shall be the latest date for which election is permitted by the contract, but not later than the anniversary of the contract next following the annuitant's 70th birthday or the 10th anniversary of the contract, whichever is later;

(2) a surrender charge may not be imposed on or past the maturity date of the contract, except that, for annuity contracts with one or more renewable guaranteed periods, a new surrender charge schedule may be imposed for each new guaranteed period if

(A) the surrender charge is zero at the end of each guaranteed period and remains zero for at least 30 days;

(B) the contract provides for continuation of the contract without surrender charges, unless the contract holder specifically elects a new guaranteed period with a new surrender charge schedule; and

(C) the renewal period does not exceed 10 years and the maturity date complies with (1) of this subsection;

(3) a contract that provides for flexible considerations may have separate surrender charge schedules associated with each consideration; for purposes of determining the maturity date, the 10th anniversary of the contract is determined separately for each consideration.

(h) Any contract which does not provide cash surrender benefits or does not provide death benefits at least equal to the minimum nonforfeiture amount before the commencement of any annuity payments shall include a statement in a prominent place in the contract that such benefits are not provided.

(i) 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.

(j) For any contract which provides, 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. Notwithstanding the provisions of (d) - (g) and (i) 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 policy 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 such additional benefits is not required in any paid-up benefits, unless those additional benefits separately would require minimum nonforfeiture amounts, paid-up annuity, cash surrender, and death benefits.

(k) After July 6, 1978, any company may file with the director a written notice of its election to comply with the provisions of this section after a specified date before July 6, 1980. After the filing of the notice, then upon the specified date, which shall be the operative date of this section for the company, this section shall become operative with respect to annuity contracts thereafter issued by the company. If a company makes no such election, the operative date of this section for the company shall be July 6, 1980.