NU Online News Service, July 12, 3:37 p.m. – Delaware Gov. Ruth Ann Minner, a Democrat, has signed H.B. 535, a bill that reduces, for a three-year period, the minimum interest rate on individual fixed annuity contract nonforfeiture provisions to 1.5%, from 3%. The new minimum rate is limited to contracts of three years or less.
The final version of the bill, which was introduced in the House by Rep. Donna Stone, R-Dover, and co-sponsored by Sen. Nancy Cook, D-Kenton, will amend Section 2929A(d)(1) of Title 18 of the Delaware Code. The section “requires insurers to include a provision in individual fixed annuity contracts specifying that the minimum interest rate for purposes of determining the nonforfeiture amount of such contracts is 3% per annum.”
The original minimum rate of 3% is based on the National Association of Insurance Commissioners Standard Nonforfeiture Model Law. The model was adopted in 1976, during an era when interest rates were much higher.
The reduced 1.5% minimum rate is more compatible with today’s low interest rates, according to life insurance industry trade groups.
The rate affects customers who decide to drop annuity contracts after many years. Most states require insurers to provide certain minimum benefits to longtime customers who let life insurance policies or annuity contracts lapse.
The Kansas City, Mo.-based NAIC is encouraging Delaware and other states to pass temporary insurance rate bills while it tries to develop a permanent solution for dealing with the new interest rate environment.
The final version of H.B. 535 passed 21-0 in the Senate and 41-0 in the House.
The text of the bill is on the Web at http://www.legis.state.de.us/lis/lis141.nsf