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NAIC Nonforfeiture Draft Open For Comment

By Jim Connolly

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NAIC Nonforfeiture Draft Open For Comment

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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.