(2) The minimum nonforfeiture amount 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 (4) of this section of the net considerations previously paid, decreased by the sum of the following:

(a) Any prior withdrawals from or partial surrenders of the contract accumulated at rates of interest as indicated in subsection (4) of this section;

(b) An annual contract charge of $50, accumulated at rates of interest as indicated in subsection (4) of this section;

(c) Any premium tax paid by the insurer for the policy, accumulated at rates of interest as indicated in subsection (4) of this section; and

(d) The amount of any indebtedness to the insurer on the policy, including interest due and accrued.

(3) For purposes of subsection (2) of this section, the net considerations for a given policy year used to define the minimum nonforfeiture amount shall be an amount equal to 87.5 percent of the gross considerations credited to the policy during that policy year.

(4)(a) The interest rate used in determining minimum nonforfeiture amounts shall be an annual rate of interest determined as the lesser of three percent per annum and the rate established under paragraph (b) of this subsection. The rates established shall be specified in the policy if the interest rate is reset.

(b) The following provisions apply to the rate:

(A) The rate shall be the five-year constant maturity treasury rate reported by the Federal Reserve as of a date certain or an average over a period, rounded to the nearest one-twentieth of one percent, that is specified in the policy and that is no longer than 15 months prior to the policy issue date or redetermination date under paragraph (c) of this subsection, reduced by 125 basis points.

(B) The resulting interest rate under subparagraph (A) of this paragraph may not be less than one percent.

(c) The interest rate shall apply to an initial period and may be redetermined for additional periods. The redetermination date, basis and period, if any, shall be stated in the policy. The basis is the date certain or an average over a specified period that produces the value of the five-year constant maturity treasury rate to be used at each redetermination date.

(5) During the period or term that a policy provides substantive participation in an equity indexed benefit, it may increase the reduction described in subsection (4)(b) of this section by up to an additional 100 basis points to reflect the value of the equity index benefit. The present value on the policy issue date and at each redetermination date thereafter, may not exceed the market value of the benefit. The Director of the Department of Consumer and Business Services may require a demonstration that the present value of the additional reduction does not exceed the market value of the benefit. If a demonstration is not acceptable to the director, the director may disallow or limit the additional reduction.

(6) The director may adopt rules to implement subsection (5) of this section and to provide for further adjustments to the calculation of minimum nonforfeiture amounts for policies that provide substantive participation in an equity index benefit and for other policies that the director determines justify an adjustment. [2003 c.370 §4]