The issue of nonforfeiture values in insurance and annuity contracts is one that continues to concern regulators.
During the summer meeting here of the National Association of Insurance Commissioners, regulators discussed advancing a general nonforfeiture project that would provide consumers with minimum contract values. A more specific discussion of a standard nonforfeiture law for individual deferred annuities was also broached.
Regulators and life actuaries offer differing opinions on the best way to proceed. Some feel that with product changes in the market a general approach is better, while others are offering a potential starting point for a more specific annuity nonforfeiture approach.
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Barbara Lautzenheiser of Lautzenheiser & Associates, Hartford, Conn., falls in the former camp. A general nonforfeiture law is needed, she says, because of the more flexible nature of life insurance products today. Having a specific nonforfeiture proposal is “not a good use of resources,” Lautzenheiser adds.
As a starting point for the more focused individual deferred annuity nonforfeiture law, the American Council of Life Insurers, offered some suggestions.
This past winter, ACLI and life insurers requested that the minimum guaranteed rate in annuity contracts be reduced to reflect a series of interest rate reductions initiated by the federal government in 2001.
The ACLI noted in a comment letter to regulators at the summer meeting that the effort to reduce the 3% interest rate to 1.5% is not expected to be universally adopted and in some states that do adopt it, a sunset clause will be included.