NAIC Adopts Request To Lower Rate Guarantee
The National Association of Insurance Commissioners, Kansas City, Mo., adopted a recommendation that minimum guarantee rates in fixed insurance contracts be lowered to 1.5% from the current 3% minimum.
The NAIC’s executive committee and plenary approved the recommendation during the annual commissioners’ weekend in San Antonio on Feb. 9.
The recommendation applies largely to fixed insurance contracts and the fixed options in variable insurance contracts.
Insurers say that multiple interest rate reductions in 2001 have created compression on spreads that they can earn in the short-term, which they define as a one- to three-year time frame. They raised the point that if rates do not reverse there could also be a problem with long-term spreads between what is guaranteed and what they can earn.
In a discussion of the issue with regulators, the American Council of Life Insurers in Washington, has said that regulators’ support is important when insurers approach state legislators, a process they say will take two years. Consequently, they asked for expedited relief while a more long-term solution is developed through the regular NAIC working group process.
Rating agencies say they are monitoring the impact of lower interest rates on insurers, but that it is not a factor that could immediately affect companies’ ratings. One rating agency analyst said net investment portfolio yields offer a sufficient cushion to buffer insurers from the impact of interest rate declines.
Reproduced from National Underwriter Life & Health/Financial Services Edition, February 18, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.