Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Annuities

NAIC Nonforfeiture Draft Open For Comment

Your article was successfully shared with the contacts you provided.

NAIC Nonforfeiture Draft Open For Comment


A regulatory proposal that would permit insurers to credit interest to individual deferred annuities that reflect current interest rate conditions will be exposed for comment following a unanimous vote by regulators.

Regulators recently voted to expose a draft of the Standard Nonforfeiture Law for Individual Deferred Annuities for public comment and discuss how to proceed with the draft model during the spring meeting of the National Association of Insurance Commissioners in Atlanta on March 8-11.

Low interest rates have raised concern among insurers that crediting interest for nonforfeiture purposes at a minimum 3% rate could affect their financial strength if they cannot find investments with rates that match liabilities.

Consequently, they have asked regulators to develop new regulatory guidelines that would give them relief in low interest rate environments.

The draft being exposed would allow insurers to use the lesser of 3% or a constant maturity Treasury rate specified by the Federal Reserve reduced by 1.25%. The resulting guaranteed rate could not be less than 1%.

Regulators voted to use a five-year CMT rate rather than a three-year CMT rate that had been recommended by the American Council of Life Insurers, Washington.

A constant maturity rate takes the average yield of U.S. Treasury securities and adjusts it for the period under examination.

If historical data is any indication, a five-year CMT in the last decade was a third of a percent higher than the three-year CMT. Thus, using the five-year CMT would give the consumer a higher minimum crediting rate for determining nonforfeiture values.

Reproduced from National Underwriter Edition, March 3, 2003. Copyright 2003 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.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.