A risk-free discount rate proposal developed by the Financial Accounting Standards Board (FASB) could discourage life insurers from selling products such as single-premium immediate annuities.
Donald Doran, a partner in the insurance practice at PricewaterhouseCoopers L.L.P., New York, has discussed that possibility in comments on a major FASB insurance accounting standards proposal.
FASB, Norwalk, Conn., is continuing to seek comments on the proposal and revise it. But, in theory, if FASB went ahead with calling for use of the risk-free discount rates, the pricing of insurance products could change quite a bit, Doran says.
In the United States, risk-free discount rate figures are usually based on yields on U.S. Treasury bonds or notes. Today, Doran says, insurers base the interest rates used in pricing on a portion of expected investment yields.