Work on a regulation to implement changes to the Standard Nonforfeiture Law the National Association of Insurance Commissioners adopted in 2003 is focusing on whether to use a single rate for the whole contract.[@@]

Regulators’ discussions center around whether to use one nonforfeiture rate for the entire contract or different rates for equity and fixed components of the contract.

The regulation is being drafted to effect changes to the Standard Nonforfeiture Law for Individual Deferred Annuities Act, adopted by the National Association of Insurance Commissioners, Kansas City, Mo. in March 2003. The changes set up a structure for determining minimum nonforfeiture amounts using an interest rate that is the lesser of 3% per year plus a 5-year constant maturity rate calculated as an average of Treasuries less 1.25%.

Among the issues regulators discussed recently was whether the SNL calls for a single rate and whether a single rate could allow insurers to play games with a policy design.

During the discussion, Sheldon Summers, a California life actuary, moved to reinstate a segment of the draft model that had been deleted from an earlier draft.

The language addresses annuities that include equity-indexed benefits. As proposed, it describes how each contract would have 1 nonforfeiture rate that applies to benefits that are not equity-indexed and specifies that the contract may have additional lower nonforfeiture rates applicable to each equity-indexed benefit, if any are chosen.

The vote ended in a 5-5 tie when New Mexico insurance regulator Michael Batte, the Life and Health Actuarial Task Force chair, cast a “no” vote. There were 4 abstentions.

Batte explained that the close vote suggested regulators were not ready to make a decision and need more time to think about the issue.