NAIC Advances Model To Deal With Annuity Interest Rate Squeeze
Citing a critical need that guaranteed minimum interest rates realistically reflect current market rates, insurers say that unless they are allowed to credit a lower interest rate for individual deferred annuities, they cannot continue to offer many of the products currently on the market.
Addressing that issue, among others, regulators advanced a draft model of a Standard Nonforfeiture Law for Individual Deferred Annuities during the winter meeting of the National Association of Insurance Commissioners here.
The draft being exposed for additional comment includes language on minimum values but cuts out language that would have protected senior citizens.
On minimum interest rates, the draft says that it shall be the lesser of 3% per year and the following: the average of a five-year Constant Maturity Treasury Rate less 1.25%, with a minimum allowable rate of 1%. The rate is set for a specific period in the contract and may be redetermined for additional periods stated in the contract.
Additionally, minimum nonforfeiture values would be based on net considerations equal to 87.5% of gross considerations. Companies would be allowed a $50 annual contract charge.
The cut language spelled out guidelines for surrenders for contracts sold to purchasers aged 70 and older.
If a contract was not co-signed by a family member or investment advisor, the deleted language would have required that the cash surrender value during the period of up to one year after the contract issue and 30 days after the receipt of the annual report for the first contract year, equal gross considerations less withdrawals and debt to the company.
During discussion on the issue, Frank Dino, a life actuary with the Florida insurance department who is heading up a team developing the draft, said although insurers contention that it is really a suitability issue might to some degree be true, it is a real issue, nonetheless.
Sheldon Summers, a life actuary with the California insurance department, noted “seniors are a target for a lot of sales of these products.”
William Schreiner, a life actuary with the American Council of Life Insurers, said, “It is a bad idea. It would severely decrease value available to older consumers … It ought to be deleted.”