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Life Health > Life Insurance

Regulators Ponder Nonforfeiture Interest Rates

By Jim Connolly

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NU Online News Service, Aug. 2, 7:04 p.m. – Regulators are talking about the interest rate life insurers should use to determine minimum annuity nonforfeiture values.

Nonforfeiture values are legally required minimum cash values that certain life insurance company customers get when they give up life insurance policies or annuity contracts.

The standard rate has been 3%.

Some regulators who are following the current National Association of Insurance Commissioners, Kansas City, Mo., nonforfeiture debate say that, given the current climate of low interest rates and low returns on other types of investments, expecting life insurers to offer a minimum interest rate of 3% is unrealistic.

Other regulators maintain that deciding which interest rates to use to determine minimum nonforfeiture values is more of an intermediate problem than a short-term problem.

Some states are already lowering the interest rate used to 1.5%, from 3%, with regulations or statutes that will push the rate back to 3% in 2004.

Moreover, some life insurers are currently offering crediting rates as high as 5%, which suggests that the potential severity of the problem might be overstated, according to Allen Elstein, a life actuary with the Connecticut Insurance Department.

A lasting solution could involve the use of a specific guaranteed rate, or an index that would allow the rate to vary, or both, according regulators and insurance company executives.

Sheldon Summers, a life actuary with the California Department of Insurance, says there should be extra protections for senior citizens who buy contracts and have an issue age of 70 or older. He has also talked about the possibility of adding a return-of-premium provision.

Summers’ critics argue that adding extra protection for seniors would increase the cost of the affected products and reduce demand.

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