Regulators discussing the proper annuity nonforfeiture rate were challenged by one of their own to put that issue aside and concentrate on the sale of annuities with high surrender charges.
During a discussion of the Annuity Nonforfeiture model regulation at the summer meeting of the National Association of Insurance Commissioners here, Utah regulator Tomasz Serbinowski said regulators should be looking at the sale of annuities with an initial 20% bonus and a 25% surrender charge rather than at a minimum nonforfeiture rate.
“I don’t believe consumers are really served by that charge,” he said. “A major consumer protection should be controlling and limiting surrender charges.”
His remarks followed a debate over whether to scrap an index rate in favor of a single interest rate and what that interest rate should be. A motion made to effect that change failed by a vote of 6-5, with 3 abstentions.
Serbinowski noted that the change to the Standard Nonforfeiture Law for Individual Deferred Annuities was enacted by the NAIC two years ago in March and “we are still debating the model regulation. We struggle in Utah with insurers trying to guess which way this may go.”
Whether the change is 1%, 2% or 3%, he asked what impact it would have. “The time would be much better spent doing something else. I don’t see the process close to an end and it could get progressively worse.”
In fact, Kansas regulator Larry Bruning noted that the temporary interest rate sunsets in Kansas on July 1, 2006, and unless there is a new regulation in place it will revert to the pre-change rate of 3%.
At the behest of insurers, regulators put a change in the minimum nonforfeiture rate on a fast track because they were concerned about the effect of 11 consecutive drops in the discount rate by the Fed. The change was viewed as temporary.
Diana Marchese, a representative for Aegon/Transamerica, Los Angeles, argued that the uniformity created by states could be replaced by a “checkerboard” of regulations if the motion for use of a single minimum interest rate were adopted.
She also noted that to get the benchmark, insurers gave up expense loads and fees. “The industry did give back; we gave to get.”
One regulator says surrender charges are more important than minimum nonforfeiture rate