ACLI Wants Guarantee Rate Cut To 1.5%, From 3%

In states where there is a budget session, the issue of reducing the guarantees could be taken up as a technical correction to a bill, but, as a practical matter, making the change will be a two-year project, she said.

Bill Schreiner, a life actuary with the ACLI, says two options are being weighed: an index that would be used as a benchmark to set minimum guarantee rates, and legislative changes that would cut the rates to 1.5%.

Already companies are dropping one- and two-year guarantees, and offerings of products with three-year guarantees are eroding, Schreiner says.

Schreiner said that all products are at risk, not just products with short-term guarantees, and he stressed the need for immediate action.

“The best approach is to bring the interest rate downward,” Schreiner said. “An index approach where the guarantee [rate] goes up or down has a lot of appeal, but it is theoretical appeal. There are many sorts of products [affected], so I’m not sure that an index would work.”

In the long-term, “a more durable situation” that would take companies up to 3% again when rates rise would be important, Marchese said. She recommends a two-prong approach that would allow companies to make changes to filings reflecting a 1.5% rate as well as a longer-term approach.

“A market-responsive system that would allow us not to have to go back to legislatures every time it is necessary to make a change, would be preferable,” Lanam said.

Regulators were told that while short-term interest rates may be the problem now, the situation could change and long-term rates could theoretically present a problem at another point in time. Consequently, a flexible system is needed, speakers said.